Effort and Comparison Income : Experimental and Survey Evidence

The authors test the hypothesis that individual effort on the job depends both on one's own income and on the individual's position in the relevant income distribution. Combining experimental evidence from a gift-exchange game with multi-country ISSP survey data, they analyze the extent to which relative income affects an individual's effort, finding that an individual's rank in the income distribution more strongly determines effort than others' average income, which suggests that comparisons are more ordinal than cardinal. Their experiment also reveals that comparisons affect effort over time: individuals who received higher income offers or enjoyed higher income rank in the past exerted lower levels of effort for a given current income and rank