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Labor Relations

Incentive Schemes, Sorting and Behavioral Biases of Employees: Experimental Evidence

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Abstract

We investigate how the convexity of a firm‟s incentives interacts with worker overconfidence to affect sorting decisions and performance. We demonstrate experimentally that overconfident employees are more likely to sort into a non-linear incentive scheme over a linear one, even though this reduces pay for many subjects and despite the presence of clear feedback. Additionally, the linear scheme attracts demotivated, underconfident workers who perform below their ability. Our findings suggest that firms may design incentive schemes that adapt to the behavioral biases of employees to “sort in” (“sort away”) attractive (unattractive) employees; such schemes may also reduce a firm‟s wage bill.

Introduction

As economists‟ understanding of behavioral biases exhibited by individuals has deepened, an emerging literature has investigated how firms can best adapt their pricing, incentive and contract offerings in light of these biases. Several papers have studied how consumer biases affect the optimal pricing...

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The Embeddedness of Adolescent Employment and Participation in Delinquency: A Life Course Perspective

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ABSTRACT

Adolescent penetration into the labor market is a relatively new, and much understudied, phenomena. To date, limited empirical evidence suggests that the extensive employment of adolescents increases their offending. We bring together insights garnered from life-course criminology, which emphasizes the timing of transitional role changes; and economic sociology, which draws attention to the "social embeddedness" of development and decision-making. The objective is to test whether a youth's embeddedness within the labor market has deleterious consequences for the youth's behavior. Our results show that work embeddedness is positively related to delinquency, and that this effect is not accounted for by prior levels of delinquent involvement. These findings were replicated by use of a community sample. In total our findings suggest that being embedded in a work role as a teenager has general deleterious consequences for behavior.

INTRODUCTION

As Hirschi (1983) observed, it is virtually an article of faith among criminologists that unemployment causes and employment prevents...

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Independent Contractor or Employee?

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Advantages and disadvantages of using independent contractors

Businesses that opt to treat workers as independent contractors rather than employees enjoy significant benefits. Most importantly, there is a significant financial motivation for using independent contractors in place of employees. Even if companies end up paying independent contractors more per hour than they pay employees, they can save untold dollars in payroll taxes, workers’ compensation premiums and employee benefit programs. Second, businesses can limit their exposure to lawsuits and resulting liability under state and federal employment laws because such laws are interpreted, in most cases, to apply only to employees. Examples of potential claims that could be avoided by treating workers as independent contractors include:

• claims brought for overtime compensation under the Fair Labor Standards Act and comparable state wage and hours law; • claims for discrimination, harassment and retaliation under Title VII, the Age Discrimination in Employment Act, the Americans With Disabilities Act and others;...

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The Problems of the Blue-Collar Workers

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The social and economic status of blue-collar workers has become a subject of increasing concern in the last few years. Recent reports have identified the economic insecurity and alienation which whites in this group have felt. What such reports have failed to note is that there are some two million minority-group males who are skilled or semi-skilled blue-collar workers who are full-time members of the work force and who share many of the same problems as whites in their income class. This nonwhite group also shares the same concern as white workers for law and order and other middle-class values. Many have moved from subemployment to low-income entry-level jobs, but they now feel blocked from further opportunity.In 1968, 34 percent of all minority-group families were in the $5,000 to $10,000 income category. Of course, on the average, most black families are still not anywhere as well off as white families: The median income of all Negro families was $5,590, that of all white families $8,937.

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