The response of workers to wages in tournaments evidence from foot races
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THE RESPONSE OF WORKERS TO WAGES IN TOURNAMENTS: EVIDENCE FROM FOOT RACES PowerPoint PPT Presentation


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THE RESPONSE OF WORKERS TO WAGES IN TOURNAMENTS: EVIDENCE FROM FOOT RACES. Meng Yang 03/20/2014. SUMMARY. The paper was written by Michael T. Maloney & Robert E. McCormick. Department of Economics, Clemson University .

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THE RESPONSE OF WORKERS TO WAGES IN TOURNAMENTS: EVIDENCE FROM FOOT RACES

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THE RESPONSE OF WORKERS TO WAGES IN TOURNAMENTS:EVIDENCE FROM FOOT RACES

Meng Yang

03/20/2014


SUMMARY

  • The paper was written by Michael T. Maloney & Robert E. McCormick.

  • Department of Economics, Clemson University.

  • Examine labor supply using 1,426 responses of individual runners to prizes in open invitational foot races.

  • Use these data to decompose the overall market response of higher prizes into two components.

    • First, there is an entry effect where higher wages attract more highly skilled runners to participate.

    • Second, the spread between prizes incites runners individually to work harder.

  • Examine the supply elasticities between the sexes.

    • Women respond more to higher wages than men in both the entry and individual effort dimensions.

  • More concentrated is the prize money in a race, the higher is the revealed effort level by the runners.


INTRODUCTION

  • The purpose of this research is to investigate the response of workers to prizes paid in tournaments- foot racing.

    • First, is the positive relation between prize level and racing performance an individual or a market response or both?

    • Second, do men and women respond the same to these wage changes?

  • The analysis is a test of the tournament model and follows the empirical work and we find that runners respond to financial incentives.

  • The supply curve of labor is comprised of the sum of two different and unrelated components.

    • Potential responses by existing participants &by new entrants.  

what are the relative magnitudes of these components?


BACKGROUND

  • Isolate the individual component of what is readily observed in many labor market settings to be a positive relation between pay and performance.

  • Two factors are in determining an individual's revealed response to a pay change.

    • First, when the market is thin, there are few potential entrants, the gaps between runners' abilities are large implying that inferior runners can rarely pressure superior runners.

    • Similarly, when the tournament is closed, it is impossible for potential entrants to join the tournament and narrow the gaps between runners.


PRIOR RESEARCH

  • Market or entry effect is more pronounced than the individual effect.

  • No evidence that uncompensated wage elasticities differ for full-time versus part-time working wives.

  • Rivals will only participate in the competition if the expected prize is large enough to offset the expected cost of the anticipated effort.

  • The decision-making process is two-fold.

    • The bigger the prize spread, the more effort each player will be forced to exert in order to maximize the expected payoff.

    • The player makes a determination of whether the expected prize, is large enough to compensate the work involved.

  • In professional golf, prize differentials between finishing positions increase proportionately with the purse.


GENDER DIFFERENCES IN LABOR SUPPLY

  • For women, The labor force participation rate is lower than for men.

  • For a given change in the market wage, the response by females is more elastic than the response by males.


THE DATA AND EMPIRICAL RESULTS

  • Four age-sex groups: open men, open women, men masters, and women masters.

  • The total purse paid varies from a low of $25 for a race paying only first place for the men's and women's masters class to $23,900 for the race paying the top twelve open male finishers.

  • There are 510 open men finishers, 474 open women, 227 men masters, and 215 women masters in the sample, a total of 1,426.


THE DATA AND EMPIRICAL RESULTS


THE DATA AND EMPIRICAL RESULTS

  • Players choose to enter a tournament based on the expected prize they will win, but once in the race, they exert effort based on the difference between prizes that they face.

    • First, we include the average prize paid in the tournament.

      • The higher the average prize, the better the racers who will choose to participate.

    • Second, we include the difference between the prize won by each racer and the next lowest prize. We call this Prize Spread.

      • The larger is this difference the more individuals will exert themselves.

  • The coefficient estimate on prize spread is contaminated with the participation effect that is supposed to be isolated in the average prize variable.


  • The model has good fit based on R2

  • Women in the open field are slower than men masters.

  • Overall times are slower when the finish of the race is not close

  • The coefficient on the variable ClosenessFactor has a positive sign

  • The less concentrated the payout of the purse, the slower is the field

  • Both the average prize paid in a runner's class and the prize spread are negative and statistically significant at the .01 level

  • The coefficient on average prize is -.017

  • The coefficient on the prize spread is -.039


  • There is an individual response as well as a participation effect.

  • Faster men in the open class are least attracted, while women masters are the most attracted.

  • The participation effect is larger for women than men, and larger for old than young.


THE INDIVIDUAL ELASTICITY OF SUPPLY

  • The pooled estimate of the prize-spread coefficient is -.015. This estimate is statistically significant at the .01 level.

  • Now the average prize, or participation effect, is larger than the individual effect.

  • The open class is more responsive than masters, that is, young people respond more individually than older people.

  • The results also say that men are more responsive individually than women.


POSSIBLE BIAS IN THE INDIVIDUAL EFFECT

  • The potential for a sample selection bias that could affect our estimate.

  • If this is true we would be falsely attributing the performance response to pay when thefact it is a stochastic result of our sampling technique.

  • The data show that the number of places deep in a race that receive prizes goes up with the size of the first place prize money.

  • Our conclusion is that random variance in individual performances is not driving the magnitude or significance of the individual elasticities.


OTHER RESULTS

  • There is less potential for a wage rate response in a short race than a long one.

  • The size of the field is an important determinant of the elasticity of supply.

  • The interceptshift for each race is negatively correlated to the purse paid in that race and to the number ofplaces paid, as is Closeness.


IMPLICATIONS OF THE ANALYSIS

  • Corporate takeovers may do is turn an intramural game into an open tournament. We find that existing workers supply additional effort when wages increase in an open tournament.

  • Corporate takeovers have large effects on managerial performance.

  • Firms that use wages as a coordination and control device should recognize that the threat of turnover is useful when wages are raised.

  • We do not find any significant differences between the individual responses of men and women or old and young people.

  • We find a difference between the market's response by age and sex categories.


CONCLUSIONS

  • There are two separate responses of runners to wages.

    • First, higher prizes are associated with faster times for individuals already in the race.

    • Second, higher prizes attract a faster field.  

  • Women have a higher participation effect than men

  • Men have a larger individual response to higher prize spreads.

  • Younger people are more responsive individually

  • Old people have bigger participation effect.

  • The more concentrated the prize money, the higher is the revealed effort level.

  • Markets and individuals respond to price when competition is free and open.


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