Income and Effort: An Instrumental Variables Approach

Abstract

Does income affect how much people value effort? If income has a negative causal effect on how much effort is valued, an increase in income will adversely affect the cultivation of a growth mindset. Achievement will then be affected because intelligence, abilities, skills, and intrinsic motivation are affected. By utilizing data from the 2010 Chinese General Social Survey, this paper shows that doubling income reduces the probability of an individual valuing effort by two to three percentage points. This study is the first to examine the effect of income on how much effort is valued. It addresses the endogeneity of income by using the regional unemployment rate, regional Consumer Price Index, and regional retail growth rate as instruments. Placebo tests were performed to evaluate the validity of the instruments. The negative causal effect of income on how much effort is valued implies that creating an environment where intrinsic motivations can flourish is of greater importance among higher income workers. Promoting employees with higher income may have a negative effect on engagement through the cultivation of a growth mindset.