Workers Care About Their Employers” Intentions

Employers’ intentions matter, according to experimental research by Professors Gary Charness and David Levine, published in the July 2007 issue of the Economic Journal. Their study finds that there can be high costs to treating workers unfairly. The good news is that if low compensation or other outcomes are clearly due to forces outside management”s control, workers may be much less likely to penalise their employer.

Everyone knows ”the road to hell is paved with good intentions”. At the same time, the famous American jurist Oliver Wendell Holmes explained, ”even a dog knows the difference between being stepped on and being tripped over”. This study moves beyond contradictory aphorisms of devils and dogs to human decision-makers. The researchers ask: do people care about intentions – even when good intentions do not produce good results?

Economists and psychologists have run many experiments with simulated ”workers” and ”employers.” In many experiments, ”workers” routinely punished a ”firm” that paid an unfairly low wage – even if the punishment was costly to the worker. In this experiment, Charness and Levine separated how much workers received from how much the firm tried to pay. The difference was a matter of luck. They found that workers reacted strongly to the firm’s intentions – how much it tried to pay – and much less to the higher or lower wage actually received (after fate intervened to raise or lower some workers’ pay).

For example, workers who end up receiving ”medium” wages responded much more positively when this resulted from the firm offering a high wage (but bad luck lowered the worker’s pay) than when this resulted from the firm offering a low wage (and good luck raised the pay).

”Intention and Stochastic Outcomes: An Experimental Study” by Gary Charness and David Levine is published in the July 2007 issue of the Economic Journal.

Gary Charness

University of California | +1-805-893-2412 | charness@econ.ucsb.edu

David Levine

University of California, Berkeley | +1-510-642-1697 | levine@haas.berkeley.edu