Various forms of the input-outcome framework featured in GEM Project have been used extensively by psychologists and sociologists in studies designed to explicate behavior while engaged in tasks for pay. Named “exchange theory”, the general approach was developed in the 1960s, most notably by Homans (1961), Adams (1963), and Blau (1964). Of course, very little in social science is ever completely new. Exchange theory has extensive roots, notably including the research of the hands-on labor economists who studied information-challenged workplaces in the middle 20th century. John Dunlop’s descriptions of wage contours receive especially frequent mention.
The earliest application of the input-outcome framework to formal macroeconomic theory is Annable (1977, 1980), followed after a time by Akerlof’s (1982) gift-exchange model. A significant difference between the two approaches is Annable’s maintenance of the fundamental transitivity principle that higher wages are preferred to lower (i.e., over-payment relative to established reference standards does not cause dissatisfaction), while the Akerlof rejects such transitivity.
Evidence. Psychologists and sociologists have used both field studies and controlled experiments to test the predictions of exchange theory. Two classes of findings are particularly noteworthy:
- Individuals use multiple reference standards in assessing their satisfaction with pay, most frequently including comparisons with coworkers, comparisons with workers performing similar tasks in other firms, and wage history. Examples of field studies producing those results are Finn and Lee (1972), Goodman (1974), Hills (1980), White (1981), Ronen (1986), Dornstein (1988), and Cappelli and Sheer (1988).
- Individuals’ perception of wage equity affects job performance, a hypothesis that has been strongly supported in controlled experiments. There have been several useful surveys of this literature including Pritchard (1969), Goodman and Friedman (1971), Adams and Freeman (1976), Greenberg (1982), and Dornstein (1991).
Indicative of deep, genetic roots of the preference for equitable treatment in hierarchies of authority, evolving to facilitate cooperation that capture efficiencies of group-living arrangements, is the famous study of monkey behavior. In the September 18, 2003 issue of Nature, Sarah Brosnan and Frans de Waal of Emory University reported on their study indicating that capuchin monkeys have evolved a finely developed sense of grievance with respect to unfair treatment. The researchers taught female monkeys to trade pebbles for food. The animals were caged in pairs, so each could observe the transactions of the other. If one monkey received a highly desired grape in exchange for a pebble, the other would be reluctant to trade for a less desired cucumber slice. Refusal was often accompanied by expressions of exasperation such as throwing the pebble (sometimes at the researcher) or refusing to eat the cucumber. Exasperated body language was twice as likely if the other monkey was given a grape without even having to trade a pebble for it.
In the wild, capuchin monkeys are a cooperative, group-living species. Cooperation is hypothesized to be more likely to be effective if group members feel they are being treated fairly. If so, the evolution of feelings of righteous indignation in response to inequity facilitates the capacity of the capuchins to live and work together productively. Brosnan concluded: “We showed the subjects compared their rewards with those of their partners and refused to accept a lower-value reward if their partner received a higher-value reward. This effect is amplified when the partner does not have to work for the reward…. People often forego an available reward because it is not what they expect or think is fair. Such irrational behavior has baffled scientists and economists, who traditionally have argued all economic decisions are rational. Our findings in nonhuman primates indicate the emotional sense of fairness plays a key role in such decision-making.” The behavior, of course, is not irrational if preferences are extended to include fair treatment.
Assessment. A large body of evidence, mostly from outside economics, strongly supports (a) the preference for fair treatment in hierarchies of authority and (b) that managements believe that worker morale in general and fair wages in particular affects OJB.
Blog Type: Policy/Topical Saint Joseph, Michigan