Wage Contract Research ——A Behavioral Economics Perspective

Wage contract research is an important issue in contemporary economic theory,which has made important theoretical achievements in classical contract theory,incentive theory and labor economics,etc.In recent years,there is a new trend of introducing behavioral economic analysis.Relevant empirical research is also rich and colorful.Based on the previous research results,this paper aims to supplement the theoretical and empirical research on the heterogeneity of individual preference and individual behavior choice decision under the mainstream economic paradigm by introducing cognitive bias and fairness preference.With the coming of knowledge era,more and more work tasks are no longer simple operation in the enterprise.Especially,the research and development and innovation work,become more and more complex,more and more need to team collaboration.Therefore,the incentive mode within the enterprise is also adjusted from individual incentive to team incentive.The most widely used form of team wage contract in high-tech enterprises is"fixed wage+project bonus+rank promotion".How do knowledge workers make behavioral choice decisions under this kind of team wage contract arrangement?How is the key role of wage contracts discussed in traditional theory-incentive and sortingrealized?What factors influence their effect?To some extent,these problems have gone beyond the traditional analysis framework of classical incentive theory and deserve further in-depth analysis.Based on a large number of literature review and theoretical review of wage research,this paper discusses the above issues in the framework of behavioral economics.Firstly,this paper introduces individual cognitive factors into the framework of wage contract analysis,focusing on the relationship between employees' cognitive bias of their own abilities and their preference for wage contract types.Specifically,this paper introduces overconfidence into the analysis framework of wage contract sorting.By introducing overconfidence into traditional theory,this paper discusses the sorting effect of different wage contracts under the existence of overconfidence.It is found that overconfidence agents are likely to put in a higher level of effort than the optimal level of effort under equilibrium.But overconfident agents were more likely to opt for a wage contract model closely linked to output.This difference was related only to the cognitive biases that the agent believed himself to be of a high level of competence,and not to be the agent's true competence.In a sense,piecework contracts have little sorting effect on competence when there is overconfidence.When non-systemic risk is high,wage contracts,in which income varies little with output,provide a form of insurance.However,because the agents are overconfident,they are more willing to take risks and choose the form of wage contract whose income is closely linked to output.At the same time,we compared the differences in competence levels between agents with and without overconfidence,and the results showed that there was no significant difference in productivity levels between the two groups of agents.When enterprises adopt team incentive wage contract,overconfident agents may increase their efforts.However,the expected returns of overconfident agents under team piece-rate wage contracts are often lower than those under individual piece-rate wage contracts.However,the expected returns of overconfident agents under team piece-rate wage contracts are often lower than those under individual piece-rate wage contracts.When there are alternatives,agents are more likely to choose individual incentive wage contract,so as to exit from the team.Therefore,when the existence of overconfidence,the ability sorting effect cannot be achieved,with the menus of individual piece rate wage contract and team piece rate wage contract that provide the same incentive intensity.Comparatively,gents are more sensitive to risks in the process of wage contract sorting.Therefore,two variable wage contracts provide the sorting of risks.This study examined the sorting effect of individual piece rate wage contract and team piece rate wage contract in controlled experiments.Experimental results showed,it is not significant that the productive sorting effect between two kinds of variable incentive contracts.The two wage contracts,the individual piece rate and team piece rate,are mainly used to sort the risk allocation among different agents.If the agent has a high degree of risk aversion,or perceives a greater risk,it's more likely to choose team incentive wage contract,on the contrary,tend to choose individual incentive wage contract.At the same time,the experiment proves that the adverse selection problem which caused by the worry about free-riding behavior is real.The perception of free-riding risk affects the selection of the two variable wage contracts.However,the perception of free-riding risk is closely related to the individual's cognitive bias,which is not significantly related to the individual's real productivity level.This stems from the limited-rationality illusion.A large number of psychological studies have identified cognitive biases associated with productivity judgments as overconfidence.In this paper,the effect is tested by controlled experiments and the results are the same as those of the theoretical model.This paper further discusses the causal relationship between this cognitive bias and productivity and perceived free-riding risk.The experimental results show that overconfidence improved the effect of productivity on perceived free-riding risk.When overconfidence is enhanced,low productivity individuals will have higher than the normal level of perceived free-riding risk,and thus choose individual piece-rate wage contract.On the contrary,when individuals who were less overconfident,or less confident in their abilities,were less likely to choose individual piece-rate contracts,even if they were more productive.Under the sorting effect of the team wage contract,it is gathered more modest group of members in the team.Then,this paper studies the incentive effect of wage contracts under the framework of equity preference.Based on the expansion of FS model,it is deduced that in team work,when the enterprise pays the employees a higher salary,the employees will return a higher level of effort,which is called "gift exchange".Fairness preference,as an incentive mechanism,means that higher wages demand higher efforts which are needed to equally distribute the surplus.Therefore,employees will respond to higher wages by increasing their efforts.When heterogeneity of fairness preference exists,bonus contract is more incentive than fixed-wage contract.Companies achieve higher level of effort when they pay their employees bonuses than a fixed-wage.Therefore,when the salary contract is set up in the form of a fixed salary plus bonus,the level of effort is higher than that of a simple fixed-wage.The actual performance of employee efforts depends on fairness preference and employee ability level.That is to say,when the ability level of employees is higher,the effort level can be better translated into work output.Based on the empirical analysis of a real working situation in an enterprise,this paper studies the fairness preference,ability level,effort level,job performance of knowledge workers and the incentive effect of wage contract.The results show that the gift exchange with effort level is real under fairness preference.It is found that fairness preference has a mediating effect on wage contract and effort.That is,wage contracts affect effort by influencing fairness preferences.Fairness preference will increase with the increase of wage level,and higher wage means higher fairness preference.However,fairness preference has no effect on employees' competence.The results also show that the level of competence mediates the relationship between effort level and performance.For low-competence employees,even if the incentive intensity is increased,there may be no significant impact on performance.By introducing cognitive bias into the team wage contract model,this paper complements theoretical and empirical research in the field of team wage contract sorting.At the same time,through the work in the real situation of experimental research,examine the preference for fair wages and performance of the work contract between interaction,and verifies the existence of gift exchange in real work scenarios,and examines the motivation of fairness preference on wage contract and behavior decision.This study verifies the existence of gift exchange in real work scenarios,and examines the motivation of fairness preference on wage contract and behavior decision.It proves that fairness preference has mediating effect between wage contract and effort level.This paper also proves that effort affects performance through ability level,but not ability level through effort level.The level of competence mediates the relationship between effort level and job performance.Under the effect of fairness preference,high salary did produce a gift exchange effort,but the effect on comprehensive ability was not significant.Companies need more precise screening tool and methods to identify individual competence rather than performance.Therefore,it has practical significance for guiding enterprise practice.