Please use this identifier to cite or link to this item:
Doerrenberg, Philipp
Duncan, Denvil
Loeffler, Max
Year of Publication: 
Series/Report no.: 
IZA Discussion Papers 9683
The standard labor-supply literature typically assumes that the labor supply response to wage increases is the same as that for equivalent wage decreases. However, evidence from the behavioral-economics literature suggests that people are loss averse and thus perceive losses differently than gains. This behavioral insight may imply that workers respond differently to wage increases than to wage decreases. We estimate the effect of wage increases and decreases on labor supply using a randomized field experiment with workers on Amazon's Mechanical Turk. The results provide evidence that wage increases have smaller effects than wage decreases, suggesting that the labor-supply response to wage changes is asymmetric. This finding is especially strong on the extensive margin where the elasticity for a wage decrease is twice that for a wage increase. These findings suggest that a reference-dependent utility function that incorporates loss aversion is the most appropriate way to model labor supply.
labor supply
loss aversion
labor supply elasticities
w.r.t. wages
Document Type: 
Working Paper

Files in This Item:
728.68 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.