The Wages of Pay Cuts: Evidence from a Field Experiment

Abstract

To understand why firms rarely cut nominal wages , we hired workers for a data entry task , paid them a high wage and then offered some of the work - ers the opportunity to keep working , albeit for a lower wage . We framed the new wage offer in different ways across treatment groups . Workers were more likely to reject lower offers , but " reasonable " justifications largely eliminated this effect . Not all justifications were effective—justifying the cut on the ground that it would increase our profits actually increased quits . We also measured whether the treatments affected quality , trust and cooperation . The " profits " treatment reduced cooperation and possibly reduced quality ; the other treat - ments had generally weak or nonexistent effects .