Recruiting Workers Under Framed Incentives: An Online Labor Market Experiment

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Theory and experimental evidence from both the lab and field suggest that penalty-framed incentives-where a contract is presented in terms of a penalty for failure rather than a bonus for success-can have positive effects on agents' effort. This is a puzzle as such contracts are rarely observed in practice. However all evidence thus far comes from already-recruited workers or lab subjects; we know nothing about what happens when such contracts are offered at the recruitment stage. In this paper I present the first evidence on how offering such contracts affects the selection of workers into jobs, as well as their subsequent performance on the job. If anything, the puzzle deepens. Workers offered a penalty-framed incentive are significantly more likely to accept the job offer, and perform significantly better on the job. Both effects are large in magnitude. In addition, I find no evidence of adverse (or advantageous) selection into penalty contracts.