Motivation

This is the first time I have made an Internet blog post, so proceed with caution:

Professor Jolls does a great job of discussing what she describes as the “fairness dynamic” and its relation to the way employers and employees decide wages. At the beginning of her article, she tells a story of how one of her acquaintances chose a pay level for a babysitter. As soon as I read this, I couldn’t help thinking of analyzing the rest of the contrast in light of the (admittedly small amount of) traditional economics knowledge that I have.

Professor Jolls’ friend paid more than the reservation wage because “the sitter [was] going to be in [her] house alone caring for [her family’s] children for a significant amount of time, and [they] just didn’t feel [they] should negotiate for a lower level of pay even though [they] believe [they] could have gotten one.” Professor Jolls’ article suggests that the babysitter was paid “fairly” “in order to encourage diligence and hard work on the employees’ part.” Yet if employee-employer interactions either are repeat games or involve some level of negotiation, traditional economics alone would tell us that the marginal increase above the reservation wage is a cost of higher service.

Professor Jolls nicely shows us that the situation is a bit more complicated. A parent may be willing to pay a babysitter beyond her reservation wage for a variety of reasons:
(A) the babysitter is offering two levels of service: basic babysitting services offered at w, the reservation wage rate; and premium babysitting services offered at w+z, where z is the marginal rate above the reservation wage that will induce the babysitter to offer the higher quality care. Offering the services at a rate of w is certainly more enjoyable for the babysitter, as she will probably spend more of her time watching TV, talking on the phone, or engaging in some other activity instead of caring for the baby. The babysitter is willing to avoid engaging in these activities if the price is right — if she is paid an extra z per hour.
(B) The parent believes that a higher wage will increase the morale of the babysitter, and this in turn will increase her performance. See 77 N.Y.U.L. Rev. 47, 52-3.

Babysitters would be a perfect experimental study group to see how behavior changes at different levels of pay and monitoring. I would be curious to see how the quality of babysitting services differs among the following situations (if possible, legally and otherwise, the quality of the services provided by the babysitters would be monitored in all situations without them knowing):
(1) the babysitter is getting paid at the reservation wage w, and nobody is ever home to monitor the babysitter’s quality of work
(2) the babysitter is getting paid at the reservation wage w, and one of the parents is always home when the babysitter is taking care of the infant. The parent, to one’s dismay, does not help raise the child even though he or she is home.
(3) the babysitter is getting paid at the reservation wage w+z, and nobody is ever home to monitor the babysitter’s quality of work
(4) the babysitter is getting paid at the reservation wage w+z, and the same parent as in (2) monitors the babysitter’s quality of work
(5) the babysitter is getting paid at the wage rate w, and both parents stop by the house at various times of the day for different lengths of time. Although there are times when the parents are not home for hours at a time, the babysitter is unable to accurately predict when the parents will be home. This would be an attempt to “maintain[] the right level of terror”, a practice opposed by Professor Jolls for child care work. 77 N.Y.U.L. Rev. 47, 64.
(6) the babysitter is getting paid at the wage rate w+z, and both parents stop by the house at various times of the day for different lengths of time. Although there are times when the parents are not home for hours at a time, the babysitter is unable to accurately predict when the parents will be home. This would be an attempt to “maintain[] the right level of terror”, a practice opposed by Professor Jolls for child care work,

And most importantly,

(7) The babysitter gets a base wage rate of w every week. At the beginning of each week, a coin is flipped determining whether the babysitter gets a bump in salary. If the coin is heads, the babysitters will get the additional wage 2z, and if the coin is tails, the babysitter will not get any wage above the reservation rate z. The numbers are designed so as to maintain an expected value of w+z for the salary. Nobody is at home while the babysitter performs her job.

(8) The babysitter gets a base wage rate of w every week. At the beginning of each week, a coin is flipped determining whether the babysitter gets a bump in salary. If the coin is heads, the babysitters will get the additional wage 2z, and if the coin is tails, the babysitter will not get any wage above the reservation rate z. The numbers are designed so as to maintain an expected value of w+z for the salary. One of the parents is always home while the babysitter performs her job.

I’d be fascinated to know the results of these experiments, especially those of (7) and (8)