Kind, fearful, or contented? An experimental investigation of the impact of bonus payments on workers' productivity

The gift exchange hypothesis suggests that workers reciprocate higher-than-market wages with increased productivity. This paper investigates this hypothesis through a natural field experiment in which bonuses reward either one or both workers in a pair. Oblivious to their involvement in an experiment, participants performed data-entry tasks. Unexpected monetary bonuses were allocated after the initial shift, based on one of three distinct criteria: (i) Relative productivity in the initial shift, (ii) greater economic need, or (iii) arbitrarily. Our theoretical model integrates self-interest, reciprocity, and sensitivity to earnings inequality. It accommodates both gift exchange motivations and the alternative hypothesis that workers perceive a monetary bonus as an indication of their employer’s contentment with their performance. We conjecture that this perception may (a) lower their subjective probability of early dismissal and (b) reduce their willingness to reciprocate the employer’s perceived kindness. Contrary to the gift exchange hypothesis, our findings reveal an unequivocal decrease in post-bonus productivity, especially when both workers are rewarded. A subsequent experiment replicates these results, offering weakly significant evidence for reduced fear of dismissal. The effect appears sizable, with effort decreases reaching 15.1% in the original experiment and 8.4% in the follow-up, relative to the initial shift average effort. Regarding inequality's impact, when only one worker in a pair receives a bonus, we note significant performance changes relative to baseline in one of three treatment conditions. This variation can be attributed to status-seeking tendencies in recipients and aversion to inequality by nonrecipients.