Essays on Labor Supply

Abstract

This dissertation consists of essays studying labor supply empirically through the use of an experimental platform set up on Amazon Mechanical Turk online labor market. The essays contribute to measuring labor supply elasticties; response of effort to pay; and the willingness to pay for job attributes. What these topics have in common is that a) it’s extremely hard to estimate these parameters using observational data, b) the parameters estimated from these studies serve as input parameters for macroeconomic models of employment, welfare policy, and tax policy. The notion that increased pay raises productivity, either through sorting or incentives, lies at the heart of the efficiency wage theory. The alternative competitive model also implies a correlation between wages and productivity, however, the causal effect implied is from productivity to pay, that is more productive workers receive higher pay. A conclusive test with the ability to nest both of these hypotheses and rule between them then has to provide a credible evidence of the direction of causality in the wage-productivity relationship. This challenge has so far been unmet in the literature. To provide an unequivocal answer, the first essay in this volume presents findings from a large-scale field experiment conducted on Amazon Mechanical Turk. The findings confirm the intuition behind the efficiency wage theory, demonstrating that increase in pay indeed has a causal effect on productivity; through sorting, and, to a lesser extent, incentives. These findings also suggest that this causalrelationship between pay and productivity is dynamic in nature, weakening over the course of the tenure of a worker. The findings also indicate that heterogeneity in tenure length among workers is correlated with their heterogeneity in response to higher pay. As the competitive model continues to be used as a microeconomic foundation of macroeconomic theories of unemployment, these findings give a vote of confidence to its main alternative – the efficiency wage theory. An integral part of Adam Smith’s compensating wage differentials theory is that work- ers trade off between job characteristics and wage. Other than risk of death, however, no job characteristics have consistently been found to affect wages, likely because of problems with self-selection and unobservable job characteristics. The second essay in this volume presents results from the experiments on Mechanical Turk, randomizing offered pay and job characteristics, thereby overcoming both problems. The findings indicate, as predicted by the theoretical model, that increasing job disamenities significantly reduces both likelihood of working and amount of work supplied. Correspondingly, the wage increases necessary to compensate workers for worse job disamenities are substantial. The last essay in this volume estimates extensive and intensive margin labor supply elasticity. Contrary to prior analyses using micro data, the findings indicate that the intensive margin elasticities are more than twice the size of extensive margin elasticities and that both are substantial, even if conditioning on working. Furthermore, using data on all workers in the experiments whether they decide to work on the experiments or not, the elasticities range from 1.2 to 2.9, depending on experiment and specification. These results are consistent with the idea that off-line labor markets are characterized by frictions that lower elasticities and may reverse the ordering of extensive margin and intensive margin elasticities.