Scabs: The Social Suppression of Labor Supply
Presenter: Supreet Kaur, Assistant Professor of Economics, UC Berkeley
5101 Tolman Hall
A distinguishing feature of the labor market is social interaction among co-workers---providing the ingredients for social norms to develop and constrain behavior. We use a field experiment to test whether social norms against accepting wage cuts distort workers' labor supply during periods of unemployment. We partner with 183 existing employers, who offer jobs to 502 randomly-selected laborers in rural India. The job offers vary: (i) the wage level and (ii) the extent to which the offer is observable to other workers. We document that unemployed workers are privately willing to accept work at wages below the prevailing wage, but rarely do so when this choice is observable to other workers. In contrast, observability plays no role in affecting take-up of jobs at the prevailing wage. The consequences of this behavior are substantial: workers are giving up 38% of average weekly earnings in order to avoid being seen as breaking the social norm. In a supplementary exercise, we document that workers are willing to pay to punish anonymous laborers who have accepted a wage cut. Costly punishment occurs both for workers in one's own labor market, and for workers in distant other labor markets---suggesting the internalization of norms in moral terms. Our findings support the presumption that, even in the absence of formal labor institutions, collusive norms can constrain labor supply behavior at economically meaningful magnitudes.