Do Self-Determined Wages Really Improve Employees Performance? Evidence from a Randomized Field Experiment

Recent laboratory evidence suggests that employees who have the extraordinary right to self-determine their wages perform better. By conducting a natural field experiment, we aim to test whether this policy actually has the predicted positive effects in a real-labor market. Employees were hired to file business reports for a half-day job. After one hour of working time, a random sample of employees was allowed to choose their own wage, whereas another control group was denied this right, while being paid the same wages as the first group. We find that performance is about 12% higher when employees self-determine their wage, whereas self-determined wages are about 20% higher . A last treatment group differed from the former only in that employees were aware that others have been granted this extraordinary right. Surprisingly, we observe here no performance decrease. An online follow-up survey reveals that the surprisingly high level of performance seems to be driven by individuals scoring high on agreeableness and wanting to prove to be trustworthy.