Transaction Frame Determines Preferences: Valuation of Labor by Employee and Contractor

Abstract

A major concern in today’s economic reality is the extent to which a sharing economy, in comparison with a traditional economy, promotes inequality. In the transformation from a traditional to a sharing economy, wage setting is replaced by contract pricing. The switch to contract trading implies that the party who carries out the labor evaluates the transaction from a buyer’s rather than a seller’s perspective. Drawing on psychological research on constructed and reference-dependent preferences, we predicted that the net valuation of work would decrease when the regimen involved contract trading. Three experiments ( N = 1,105) eliciting work valuation under the two regimens confirmed our prediction, thus pointing to a novel factor that increases inequality.