“It’s an interesting question that, frankly speaking, modern economic theory isn’t able to offer a clear-cut answer to,” says Luxi Shen, Associate Professor at the Department of Marketing at The Chinese University of Hong Kong (CUHK) Business School, in discussing her new paper with Prof. Samuel Hirshman at the Norwegian School of Economics, that examines this topic.

She notes that in some situations, the supply of work seems to change in the same direction as wages. This was likely the thinking that led Uber, a ride-hailing platform, to implement it so-called “surge pricing” model in 2014. Basically, the company raised prices for rides when demand increases and there is an acute shortage of drivers within a given area (say, during rush hour), and lowered them back down when demand ebbs. This implies that Uber believes that an increase in wages would cause the supply of labour to also go up.

In other settings, the supply of labour moves in the opposite direction of wages. For example, past studies have noted that taxi drivers stopped working when they have achieved a certain target that they have set for themselves.

A Behavioural Perspective

In the new research study As Wages Increase, Do People Work More or Less? A Wage Frame Effect, Prof. Shen and Prof. Hirshman took a psychological approach to this economic question and theorised that the manner in which a change in wages is framed or presented can determine how it affects whether people work more or less.

For example, suppose a driver who works for a ride-hailing firm earned $600 for pulling 30 hours a week (at a rate of $20 per hour). When the payrate increases to $30 per hour, this driver can either think of it as doing same amount of work and earning $900 (as a “pay-change frame”), or for the same amount of earnings, they only need to work 20 hours (as a “load-change frame”).

“Purely from a financial perspective, how much work any given individual supplies should only be affected by how much they are paid and the extent to which that changes,” says Prof. Shen. “However, from a behavioural perspective, we posit that the way that this change in wages is presented can affect this decision.”

Prof. Shen and Prof. Hirshman theorised that when an increase in wages is framed as an increase in pay for the same amount of work, it would encourage people to work more. However, if the same change in wages is framed as a decrease in workload, then the opposite would happen.

Cognitive Insights

To test this theory, the researchers conducted two experiments. In the first experiment, they recruited 132 participants in Hong Kong through a job advertisement. In a controlled laboratory experiment, the participants were asked to pump balloons in exchange for money.

The results confirmed the researchers’ hypothesis. Specifically, it found that when wages increased, the supply of work also increased if the pay rise was communicated as an increase in pay for the same amount of work done. On the other hand, if this was communicated as a decrease in workload, then the participants would work less. It also found that this effect was twice as strong when wages fell, compared to when wages went up.

The results confirmed the researchers’ hypothesis. Specifically, it found that when the piece rate increased, work supply (i.e., the number of balloons produced) increased if the pay rise change was communicated as a pay change and decreased if it was communicated as a work load change. It also found that this work supply difference between frames was amplified when the piece rate decreased.

A second study conducted among nearly 500 online survey workers in the U.S. further validated the results. Finally, in a follow-up study, the researchers also found that this effect held even when actual numbers were left out of the communication altogether and workers were told verbally about a change in their pay rate (such as by telling them that they could do the same amount of work but earn double the pay).

To better understand the results, Prof. Shen returned to the labour-leisure trade-off. She explains that it is possible that when wage changes are framed as either a change in payment or workload as the defining attribute, the frame of the wage change is what psychologically impacts on workers. “In another words, workers care about making money if a wage change is communicated as a pay change, regardless of increase or decrease. But if the wage change is communicated as a workload change, workers start to care about taking time off from work and enjoying leisure,” she says.

Tailoring Communication on Pay

The authors of the study note that the gig economy is a labour market where the new findings may be particularly applicable. Not only are gig jobs inherently short-term in nature, but gig workers also are more able to freely choose exactly how much work to supply, compared to traditional salaried workers. As a result, they have better flexibility to respond to wage changes. Prof. Shen also notes that managers in the gig economy have better freedom in how they construct and communicate changes in pay. Most large-scale gig economy firms such as Uber and its rival Lyft already collect extensive information on their workers, and this makes it feasible for managers to tailor how they communicate changes in pay. It should be possible for these firms and others to personalize communication about changes in pay.

“Hopefully, our findings can help to provide guidance for inexperienced managers, whether they be in big or small organisations, on how to strategically design and effectively communicate incentive schemes,” says Prof. Shen, adding that future research in cognitive psychology and neuroscience may shed additional light on the mechanism behind the wage effects observed in the study, further enhancing the ability of managers to communicate effectively on pay.

Different Types of Job Mobility

Taking advantage of online job platforms, the researchers analysed over 30,000 resumes posted by job seekers on Zhaopin.com – one of the largest career platforms in China with over 100 million registered users. The resumes collected contain information including employment history, salaries, and details of their past jobs such as position and industry.

The researchers found that jobseekers who were already employed were in general more willing to relocate for other job opportunities than those who were not. Specifically, women with jobs were 3.3 percent more willing to relocate than unemployed women and men with jobs were 5.6 percent more likely to move for a job compared to jobless men. Also, people who were managers in the past were more likely to seek jobs in other locations. For instance, women and men with management experience were 2.8 percent and 4.5 percent more likely to relocate, respectively.

However, those who have worked across more industries tend to be less willing to relocate. In terms of numbers, a one unit increase of this metric would lead to 0.7 percent and 1.9 percent decreases in female and male job seekers’ willingness in relocating, respectively.

Moving onto different industries or professions is also a type of job mobility. The study finds that job seekers who were already working were less likely to switch industries or occupations than those who were jobless. Also, job seekers holding management positions in their last job were less willing to change their profession than those who were not managers in their last job. The sentiment is stronger for male ex-managers, at 22.7 percent, and 17.2 percent for female ex-managers.

In contrast, people with experience in multiple industries were more willing to change industry or occupation. A one unit increase in the diversity of industry experience made female job seekers 9.1 percent more likely to change industry and 2.9 percent more willing to change occupation, and 12 percent and 1.6 percent for male job seekers, respectively.

“Whether someone is willing to relocate for work can depend on their individual circumstances as well as where they are in life. For example, highly educated people tend to be more willing to move because they can easily get a job in any place they want. Older people are generally less likely to relocate or change profession or industry because they have already built a life where they are and it can be hard to walk away and start afresh,” Prof. Li says. “Of course, pay is also a big issue.”

Job Seekers’ Expectations on Salary

What do people look for when they decide to seek opportunities elsewhere? According to the study, people who wish to relocate expect to be paid more by 6.3 percent. Specifically, female job seekers anticipated a salary increase of 7.8 percent while that of male job came in at 8.6 percent.

However, people who plan to move on to a different industry, profession, or both, have lower expectations on salaries – which they adjust downwards by 7.1 percent, 2.6 percent, and 11 percent, respectively, implying that job seekers understand they would most likely be paid less when moving into a role for which their experience is relatively less relevant compared to a candidate hailing from the same industry or profession. On the other hand, perhaps indicative of the fact that talented workers tend to find jobs in different locations easily and would normally take the best offer available, the research found that when people seek to change both location and industry or both location and profession, they would expect pay to rise, by 3.1 percent and 7 percent, respectively.

“Our results clearly show that the positive influence of changing job location on pay tends to offset the downsides of moving into a profession or industry a job seeker isn’t overly familiar with, ,” Prof. Li says. “Uprooting your life and moving to a different city for a job is a big decision. It just shows that people aren’t typically willing to do it unless there’s a strong enough financial incentive for it.”

Delving deeper into the data, Prof. Li and his co-authors found that age, gender, and marital status can all affect job seekers’ salary expectations. Older, male, and married job seekers tend to have higher expectations for salaries.

Additionally, people who are used to earning higher salaries were more likely to expect a pay rise than those who make less. Separately, the study found that job seekers who are currently employed tend to expect their salary to rise by 17.2 percent more compared to those who are jobless. The researchers explain that this is possibly because unemployed job seekers often aim to land jobs quickly and are willing to sacrifice salary to secure an opportunity.

While changing industry leads to a lower salary expectation among all job seekers, changing profession only affects female and younger job seekers. Prof. Li explains that changing profession inevitably leads to the loss of profession-related skills. Younger job seekers usually have limited work experience so that their skills are highly specialised, which can become a disadvantage when changing professions.

The Importance of Transferrable skills

The researchers note the study has significant implications for governments when designing training and work transition programmes. They highlight that it is important for authorities to emphasise transferrable skills and how the skills can be applied in a wide range of career options to promote the development of healthy and liquid labour markets. On the other hand, they also suggest that governments should encourage and support job seekers to specialise in an area that is relevant to their choice of industry and location.

Moreover, as salary expectation is closely linked to reservation wage – the lowest wage that a person is willing to work for, policy makers can consider the factors influencing salary expectation when drafting or amending legislation related to minimum wage, especially for unemployed people.

“We’re living in a world where labour markets are becoming increasingly dynamic, and where lifetime employment is a thing of the past. That’s why it’s more important than ever for us to understand and disentangle the different factors that motivate people to change jobs. Not only will this help businesses attract and retain talent, but it will help economies to develop and maintain healthy and efficient labour markets that are crucial for growth” Prof. Li says.