Penalty rates how valuable are they: some evidence

Valuing Alternative Work Arrangements
by Alexandre Mas, Amanda Pallais – #22708 (LS)


We use a field experiment to study how workers value alternative work
arrangements. During the application process to staff a national
call center, we randomly offered applicants choices between
traditional M-F 9 am – 5 pm office positions and alternatives. These
alternatives include flexible scheduling, working from home, and
positions that give the employer discretion over scheduling. We
randomly varied the wage difference between the traditional option
and the alternative, allowing us to estimate the entire distribution
of willingness to pay (WTP) for these alternatives. We validate our
results using a nationally-representative survey. The great majority
of workers are not willing to pay for flexible scheduling relative to
a traditional schedule: either the ability to choose the days and
times of work or the number of hours they work. However, the average
worker is willing to give up 20% of wages to avoid a schedule set by
an employer on a week’s notice. This largely represents workers’
aversion to evening and weekend work, not scheduling
unpredictability. Traditional M-F 9 am – 5 pm schedules are
preferred by most jobseekers. Despite the fact that the average
worker isn’t willing to pay for scheduling flexibility, a tail of
workers with high WTP allows for sizable compensating differentials.
Of the worker-friendly options we test, workers are willing to pay
the most (8% of wages) for the option of working from home. Women,
particularly those with young children, have higher WTP for work from
home and to avoid employer scheduling discretion. They are slightly
more likely to be in jobs with these amenities, but the differences
are not large enough to explain any wage gaps.

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Moz of Yarramulla
Moz of Yarramulla
7 years ago

The one that always gets me is the cost of part time work in STEM – it’s often 50% or more, and escalates over time. I have in the past taken part time, flexible work, but never in my actual STEM field. If I’m going to take lower pay I will do a simpler job where all I have to do is turn up, sober, and not do anything egregiously stupid.

The “best” offer I’ve found in 20-odd years of looking was $65k pro rata for 4 days a week… or $90k full time. Their rationale was that senior technical positions require full time staff, so being part time means dropping a few pay grades. But those part time positions were explicitly not open to staff at the actual pay level… screw that, I’ll go work in a plant nursery where I actually enjoy the work. So in those terms, I can afford to accept $25/hour for that rather than $32/hour for office work (and have actually done so, albeit $25/hour for “we will negotiate exact hours every week but you’ll get at least one day every week”… plus overtime etc etc because the boss was not an arsehole. Another difference between that and the STEM work. Ahem).

One of the compensating benefits that is often lost today is that the odd-hours, short-notice jobs used to be casual both ways – if you didn’t want to work a shift you said so and that was that (subject to later bribery if they lacked staff). But todays “reformed labour market” with the very strong pressure to take whatever work you can get means that that is no longer the case – it’s generally easier for the employer to find a part-time, casual, on-call worker who is “more reliable” rather than negotiate with people who have the power to say no to an inconvenient shift.

I suspect part of the problem with the research was the confounding effect of poverty-level wages with a greatly reduced safety net. To someone currently choosing between paying the electricity bill and eating, the value of “flexible work” is zero – if they had flexible work they’d choose to work more. And at higher wages :) Like Greg Jericho (et al) keep pointing out, underemployment is huge, especially if you include those displaced from the work force altogether.

Chris Lloyd
Chris Lloyd
7 years ago

“To someone currently choosing between paying the electricity bill and eating, the value of “flexible work” is zero.”

On the other hand, the research showed that people wanted a 20% premium if they were to work on the late notice whim of the employer, which really doesn’t fit the “desperate to pay the gas bill” explanation.

It may be that people really do value working at home (8%) less than having predictable hours (20%).

I do take what I think it your meta-point that this is American data and probably has little relevance to Australia. Anybody who thinks the US is on the same planet as Oz only needed to watch the Presidential debate. Next time I get annoyed by the leftists on Q&A, I will think of Donald Trump .