Transaction Frame Determines Preferences: Valuation of Labor by Employee and Contractor

Area of Science:

• Behavioral Economics
• Social Psychology
• Economic Inequality

Background:

• The rise of the sharing economy presents a shift from traditional economic models.
• Understanding the economic and social implications, particularly regarding inequality, is crucial.
• The transition involves replacing wage setting with contract pricing for labor.

Purpose of the Study:

• To investigate how the sharing economy, compared to the traditional economy, influences economic inequality.
• To determine the impact of contract pricing versus wage setting on the valuation of work.
• To identify psychological factors contributing to potential increases in inequality within the sharing economy.

Main Methods:

• Three experiments were conducted with 1,105 participants.
• Participants' valuation of work was elicited under two economic regimens: traditional (wage setting) and sharing (contract pricing).
• Psychological theories on constructed and reference-dependent preferences guided the experimental design.

Main Results:

• Work valuation was significantly lower under contract trading compared to wage setting.
• Participants evaluated their labor from a buyer's perspective when using contract trading, rather than a seller's.
• This psychological shift in perspective was confirmed as a key factor influencing work valuation.

Conclusions:

• The shift to contract pricing in the sharing economy can decrease the net valuation of work.
• This reduced valuation represents a novel factor contributing to increased economic inequality.
• Findings highlight the psychological underpinnings of economic inequality in evolving labor markets.