Title: Essays in Behavioral Labor Economics
Description: This dissertation consists of three essays in Behavioral Labor Economics. The first two chapters contribute to the understanding of non-standard preferences of individuals in the workplace, and the third studies how cultural values affect firm behavior. The first chapter studies the incentive effects of top-down favoritism in employee promotions on workers and its organization-wide productivity consequences, and provides evidence on social preferences and fairness concerns among co-workers. Using data from public high schools in four Chinese cities, I first show that teachers with hometown or college ties to the school principal are twice as likely to be promoted, after controlling for characteristics on their application profiles and their value-added in teaching. I then use the results from a survey in which I asked teachers to select anonymous peers to promote from a pool of applicants applying for promotion to infer each teacher’s revealed fairness views regarding promotion qualifications.

Contrasting these with actual past promotions in turn allows me to measure if and when a teacher might have observed unfair promotions in her own school in the past. Exposure to unfair promotions adversely affects non-applicant teachers’ output, lowering their value-added and raising the probability that high-value-added teachers quit. The value-added effect appears to be driven primarily by teachers’ social preferences for peer workers and the consequent erosion of their morale when peers suffer unfair treatment, while the quitting effect comes mainly from non-favored prospective applicants’ career concerns as they learn about the principal’s bias and leave due to poor promotion prospects. These adverse spillover incentive effects lead to a substantial reduction in school-wide output, which is only slightly mitigated by increased productivity among favored teachers. Finally, a transparency reform that required principals to disclose to their peers the profiles of teachers that apply for promotion reduced the principals’ bias and improved the overall productivity of schools.

The second chapter documents daily targeting behavior in workers’ labor supply decisions. Using a novel dataset on the daily production of a group of piece-rate manufacturing workers combined with their quasi-random daily income shocks from lunch break card game gambling, I show that the workers’ afternoon labor supply responds negatively to instantaneously-paid quasi-random gambling income, although wages are paid monthly. The workers’ labor supply decisions were consistent with daily mental accounting and reference dependence where the target was set on the sum of the face - valued daily (receivable) labor and (paid) unearned income, as opposed to the neoclassical model of inter-temporal labor supply. Estimation of two structural models of daily labor supply yields a coefficient of loss aversion parameter of 1.8 to 2.0, significantly different from the neoclassical value of 1; and individual specific loss aversion structural estimates correlate positively with survey measures. Using estimated preference parameters, I back out the implied total wage elasticity of daily labor supply as well as a sizable negative reference-dependent component of it.

This study overcomes the common identification issues in the daily labor supply literature by exploiting high-frequency, actively taken-up and unanticipated income shifters that are independent of other labor supply and demand confounders. In the third chapter, we show that many employers anchor their wages at establishments outside of the home region to headquarter levels, and begin to study the consequences. Our analysis makes use of an unusual 2005-2015 establishment-year level dataset of average wages by narrowly-defined occupation. The dataset covers 1,800 large employers that span many different sectors and each operate in a subset of 170 observed capital city locations. We show that, across the occupational skill range—including for low-skill support staff— the average wage multinationals pay domestic workers in a given occupation at foreign establishments is robustly and remarkably highly correlated with the average wage they pay workers in the same occupation in the home country.

We then instrument for headquarter wage levels with changes in home country minimum wage laws and show that externally imposed wage increases at home causally raise wages abroad. The relationships we establish between headquarters’ and their foreign establishments’ wage levels and wage changes are both driven by employers from inequality-averse societies. Occupations are more (less) likely to be removed from, and less (more) likely to be added to the foreign establishments (headquarters) of such employers after a (minimum wage-induced) wage increase originating at the headquarter. Our results point towards the existence of “wage cultures” that influence how production is organized across space.