Worker Morale and Effort: Is the Relationship Causal?

Abstract

We investigate a unique setting which enables us to distinguish between two theories of work performance. A standard labor supply framework implies a negative effect of the nonpecuniary cost of work on the employee's effort. In contrast, a model of worker morale that is consistent with a widely used theory of Akerlof and Yellen (QJE, 1990) predicts this negative effect is stronger (weaker) for low‐morale (high‐morale) workers. We exploit a natural experiment design of a firm relocation from Milwaukee's Central Business District to the area's suburban ring in 1992. There is an exogenous source of variation on the adjusted commuting distance among those who stay at the firm. Some workers received a windfall gain, whereas other workers experienced an unforeseen cost in longer commuting time. The estimates suggest that low‐morale workers are responsive to the shock in commuting time for some of the dimensions of morale. We conclude that the results give some indication of the model of worker morale.