Work perceived as immoral is associated with higher wages; the least moral types are more likely to be employed in such work

Sorting and wage premiums in immoral work. Florian H. Schneider, Fanny Brun and Roberto A. Weber. University of Zurich, Department of Economics Working Paper No. 353, June 29 2020. https://www.econ.uzh.ch/static/wp/econwp353.pdf

h/t Vitalik Buteryn Endnotes on 2020: Crypto and Beyond (vitalik.ca)

Abstract: We use surveys, laboratory experiments and administrative labor-market data to study how heterogeneity in the perceived immorality of work and in workers’ aversion to acting immorally interact to impact labor market outcomes. Specifically, we investigate whether those individuals least concerned with acting morally select into jobs generally perceived as immoral and whether the aversion among many individuals to performing such acts contributes to immorality wage premiums, a form of compensating differential. We show that immoral work is associated with higher wages, both using correlational evidence from administrative labor-market data and causal evidence from a laboratory experiment. We also measure individuals’ aversion to performing immoral acts and show that those who find immoral behavior least aversive are more likely to be employed in immoral work in the lab and have a relative preference for work perceived as immoral outside the laboratory. We note that sorting by “immoral” types into jobs that can cause harm may be detrimental for society. Our study highlights the value of employing complementary research methods.

Keywords: Wage premium, immoral behavior, sorting, experiments

JEL Codes: C92, J31, D03

7. Discussion and Conclusion

We investigate whether heterogeneity in individual preferences for avoiding immoral work and the perceived immorality of work influence the jobs that individuals select and individuals’ earnings. Our study employs a laboratory experiment, surveys and administrative data to identify heterogeneity in concerns for morality and to create (or, measure) variation in the immorality of jobs. We use these different kinds of data to test two main hypotheses— first, that jobs generally perceived as immoral will yield a wage premium and, second, that individuals less concerned with moral behavior will be more likely to sort into such jobs.

In a laboratory setting, we use a simple behavioral task to classify individuals as “moral” or “immoral” types. We then show that this characteristic predicts the outcomes that individuals obtain as we experimentally vary only the immorality of work. We find support for both our hypotheses. Labor markets for immoral work yield significantly higher wages. Moreover, immoral workers are significantly more likely to be hired for immoral work than are moral workers; but this relationship disappears in a labor market for neutral work. We also find that a market for immoral work benefits immoral types, particularly when they compete with fewer other immoral types.

We separately use survey responses to classify the immorality of real-world firms and industries and show that industries classified as immoral pay higher wages. We also use surveys to obtain a separate measure of workers’ moral types. This individual characteristic is correlated with the moral type measured in the laboratory and predicts subjects’ behaviors in the laboratory labor market. Moreover, both the survey-based and lab-based measures of morality also predict stated preferences for working in firms and industries outside the laboratory that vary in their perceived morality. Using either measure, workers less concerned with morality are more willing to work for firms and industries generally perceived as less moral.

Given the significance of many social ills produced by immoral work practices, such as deceptive marketing of socially harmful products, our study sheds important new light on the interaction between individual’s types, their willingness to do immoral work and the resulting labor-market outcomes. Our work also has several important policy implications.

First, in those jobs and industries with the greatest potential to do societal harm, social welfare will often be higher when workers voluntarily internalize the negative impacts of their actions and forgo potentially profitable opportunities. For instance, a weapons manufacturer may restrict sales to conflict areas if top management has a moral aversion to the social harm caused by such sales. However, our evidence suggests that it is the least moral types who will sort into these industries and that, therefore, labor market sorting will make it less likely that such internalization will occur. This also creates an important contrast between our findings and related work on sorting by mission-oriented types into firms or jobs with a pro-social orientation. In such cases, sorting may often be beneficial for society, as those who care about a cause become the ones who impact it; in our case, however, those who care about doing “good” may avoid the opportunity to determine how much “bad” takes place.

Second, another implication of our empirical findings is that the perception that a firm, industry or type of work is immoral may be self-reinforcing. If, as our results indicate, the perception that work involves immoral acts leads people less concerned with acting morally to differentially opt into such work, then the end result of such sorting may be a workforce more likely to commit immoral acts. Even if some of the firms and industries that we study do not actually involve any inherently immoral activities in their line of work, the fact that they are disproportionately more attractive to people more willing to do immoral things may result in a self-confirming greater prevalence for immoral behavior. Thus, firms and industries that regularly confront the perception that they involve immoral work—such as the banking sector—may need to be particularly attuned to such selection in their hiring.

Finally, our theoretical analysis predicts—in line with our experimental data—that the least moral types are overcompensated by the immorality premium. This is in stark contrast to Mankiw’s (2010) “just deserts theory”—that is, everybody should receive his or her contribution to society. Our work suggests a perverse case in which those willing to do the most socially harmful acts may instead benefit from doing so. Moreover, this benefit is the direct result of the actions by others who are concerned with behaving morally. Indeed, we provide evidence that a shift in preferences toward a greater aversion to performing immoral work may reward those individuals who are least concerned with morality. Of course, our work leaves open many important questions regarding the precise characteristics that lead some kinds of work to be differentially perceived as immoral and the specific nature of the preference underlying workers’ market behavior. Nevertheless, as the above examples make clear, the differential sorting by people more or less concerned with immoral behavior into different lines of work has important implications for the extent to which market activity yields beneficial social outcom