When 3+1>4

Do higher wages elicit reciprocity and hence higher effort? In a field experiment with 266 employees, we find that paying above-market wages, per se, does not have an effect on effort relative to paying market wages. However, structuring a portion of the wage as a clear and unexpected gift (by hiring at a given wage, and then offering a raise with no further conditions after the employee has accepted the contract) does lead to higher effort for the duration of our job. This subtle but critical difference sheds light on the conditions under which higher wages will lead to reciprocity. We find that the impact of the gift is pronounced for workers with the most experience and workers who have worked most recently--precisely the individuals who would recognize it is a gift. The effects of the gift are higher for workers with lower historical wages, and in fact it increases productivity more than it increases cost for this group. Our findings show that targeted gifts can be effective, but that the reciprocity measured after surprising an employee with a raise is fundamentally different from that posited to explain persistent above-market wages.