When employers can incur losses from the labor relationship in a gift exchange game, they offer lower wages on average than in a no-loss relationship. Taking employers’ risk of losing money into account, employees exert more effort per wage unit.

When an employee in a gift exchange game earns significantly less than the employer, the source of employer income does not affect effort choices. However, to induce one unit of effort, the employer has to pay higher wages than in a game without payoff inequality.

We introduce the joy-of-destruction game. Two players each receive an endowment and simultaneously decide on how much of the other player's endowment to destroy. In a treatment without fear of retaliation, money is destroyed in almost 40% of all decisions.