Working Paper: NBER ID: w12202
Authors: Alexandre Mas
Abstract: Several theories suggest that pay raises below a reference point will reduce job performance. Final offer arbitration for police unions provides a unique opportunity to examine these theories, as the police officers either receive their requested wage or receive a lower one. In the months after New Jersey police officers lose in arbitration, arrest rates and average sentence length decline and crime reports rise relative to when they win. These declines are larger when the awarded wage is further from the police union's demand. The findings support the idea that considerations of fairness, disappointment, and, more generally, reference points affect workplace behavior.
Keywords: pay raises; police performance; arbitration; reference points
JEL Codes: J0; J5; D0; H7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Police performance declines when police officers lose in arbitration (J52) | Crime clearance rates decline (K42) |
| Arbitration ruling in favor of police officers (J52) | Crime clearance rates increase (K42) |
| Union losses (H56) | Reduced cooperation with prosecutors (K49) |
| Union losses (H56) | Lower incarceration probabilities and shorter jail sentences (K14) |
| Union losses (H56) | Increase in reported crime rates (K42) |
| Degree of loss incurred by police unions (J58) | Decline in police performance (K42) |