IZA Young Labor Economist Award 2011

Steffen Altmann | Klaus F. Zimmermann | Matthias Wibral
At the 2012 ASSA meeting in Chicago, IZA Director Klaus F. Zimmermann presented the 2011 IZA Young Labor Economist Award to the authors of the article "Gift Exchange and Workers' Fairness Concerns: When Equality Is Unfair" (Journal of the European Economic Association, 2010). Representing the team of authors, which also included Johannes Abeler and Sebastian Kube, Steffen Altmann and Matthias Wibral attended the award ceremony in Chicago.

The award-winning paper shows that a simple request for equal wages may be neither efficient nor fair. The authors analyze the interaction between reciprocity as a contract enforcement device and modes of payment. In the experiment principals employ two agents who put forward effort prior to receiving their wage. In one treatment the principal can determine individual wages for the two agents (after observing their effort); in the other the principal has to pay the same wage to both workers. The results show that efficiency is quite high in both treatments, but considerably higher in the treatment where wages can be targeted individually. The reason is that workers who have provided higher efforts perceive wage equality as unfair. This in turn induces them to lower their effort. In other words, if agents work differently hard, an equal wage is detrimental for reciprocity as a contract enforcement device. This finding has important implications for the complex interaction of modes of payment and contract enforcement in the presence of social norms.