SOCIAL-EXCHANGE IN THE LABOR-MARKET - RECIPROCITY AND TRUST VERSUS EGOISTIC MONEY MAXIMIZATION

This paper presents results from a series of experimental labor market s. The implications of standard economic theory are contrasted with so cial exchange predictions. According to standard economic theory, work ers and employers are rational egoistic individuals who strive to maxi mize profit. In markets, as well as in bilateral interactions, employe rs should offer the lowest wages which workers will accept and workers should provide the effort level which maximizes their utility (i.e. t he minimum permitted). According to social exchange principles, wage n egotiations between employers and workers are not only determined by e goistic profit maximization but also by social norms. Interacting part ners stick to the norm of reciprocity and reciprocate favors. Employer s are supposed to trust reciprocation norms and offer higher than rese rvation wages, expecting workers to provide higher effort in response. Consequently, workers' effort choices are expected to be positively c orrelated to employers' wage offers. Four experimental conditions were realized to test hypotheses deriving from standard economic theory an d social exchange theory. In general, standard economic theory was poo rly supported. Reciprocation norms were found to be important and, on average, cooperation was considerably higher than predicted by economi c theory. There were, however, significant differences between partici pants: some workers cooperated over a series of bilateral trading peri ods and in market situations, whereas others did not. It is argued tha t economic theory needs to take into account both social norms and als o personality differences as well as nonstandard motives which underli e human behavior.