Publications

Economists have argued that employers sometimes pay above-market premiums (efficiency wages) in order to attract, motivate, and/or retain valued personnel. Drawing on recent work examining reciprocity and gift exchange, this paper proposes the notion of “empathy wages,” in which the effect of the premium paid depends on the extent to which it elicits gratitude from recipients. We argue that a particular gift (monetary or otherwise) offered by an employer is likely to elicit more gratitude among “non-stars”: workers who are relatively disadvantaged and in the lower part of the performance distribution. In contrast to “stars,” “non-stars” are likely to compare the treatment they receive to the inferior opportunities or treatment they (might) have received outside of their present employment situation. Star workers, in contrast, are likely to believe that they are worth whatever they can command. The economic viability of such “empathy wages” thus depends on how much star versus non-star workers vary in gratitude, relative to how they differ in output and compensation. We explore a variety of data bearing on how much stars differ from non-stars in their respective output and earnings (in star contexts such as professional sports and real estate sales). We then review or reanalyze some prior studies on gift exchange, documenting that those who are relatively disadvantaged and/or low performers do appear more grateful (or inclined to reciprocate gifts) than stars. Indeed, the magnitude of the difference is sufficiently large that it could offset quite marked differences in productivity or quite small differences in compensation (both of which would make stars relatively more attractive to employers). We suggest some conditions under which gratitude-based employment systems are more likely to flourish in real-world settings, as well as some fruitful lines for future research on these topics.

On July 10, 2009 the Bundesrat became the last body of the German Parliament to ratify passage of a treaty between Germany and Denmark, allowing the construction of the Fehmarn Fixed Link (FFL). Initially conceptualized as a bridge, the favored design for the FFL in 2010 was a tunnel that would connect the Danish island of Lolland to the German island of Fehmarn, speeding transportation between Copenhagen and Hamburg. When completed in 2020, the tunnel will be one of the longest and deepest road and rail tunnels ever constructed.

Taking on this daunting construction project was Fehmarn A/S, a fully owned subsidiary of the Danish State. Fehmarn A/S’s management team certainly had experience in managing complex construction projects; a number of them had occupied high-ranking roles at Øresundskonsortiet (ØSK), the organization that built the Øresund bridge-tunnel. The Øresund Bridge-Tunnel, a 16km road and rail way, represented a major engineering feat, connecting Norway and Denmark across the Øresund Strait. When finished, the Øresund link required building a long tunnel, constructing an artificial island and erecting the longest automobile-railroad bridge in Europe. Despite difficult weather and terrain, the ØSK management team had brought this complex project in ahead of schedule and on budget.

Facing an equally daunting project, the Fehmarn team now considered how their experience managing contractors on the Øresund could inform their current project. With total construction costs expected to reach €5.5 billion over the course of the seven years anticipated to build the link, much was at stake in structuring the various construction contracts. The Øresund project was considered a success, but the circumstances of the new project were different and therefore the team had to reevaluate how the contracts were structured.