Effective Wage Differential Bundle Mechanism

In Simple Words

Imagine a fruit stand offering a small basket of 5 apples for $10 and a larger basket of 10 apples for $15; the true cost of those 5 additional apples isn't the average price per apple, but the $5 price difference divided by the 5 extra apples ($1 per extra apple).

Research question

Standard job postings bundle work hours and hourly rates together, making it difficult for economists to isolate a worker's willingness to supply an extra hour of labor without confounding total income or job tier changes.

Participants

N = 2,658 total job applicants across 80 U.S. metropolitan areas in a real hiring experiment for phone survey and data entry positions (83% female, mean age 33.6 years).

Study Design

Discrete choice field experiment where job applicants select between two position descriptions differing by 5 weekly hours ($X$ vs $X+5$), with randomly assigned effective incremental wages $e_{ih} \in [\$0, \$28]$ evaluated via a logit discrete choice model.

Results

The logit intercept divided by the slope directly identifies the marginal value of time, proving that effective wage variation cleanly isolates willingness to supply incremental work hours without income effects.

Takeaway

Calculate effective marginal wages in discrete job offerings using the formula $e = \frac{h_2 w_2 - h_1 w_1}{h_2 - h_1}$ to isolate true hourly compensation for incremental work hours.

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