Social Connections in Hiring Decisions: Lab-Experimental Evidence from Tanzania

This is a lab experiment without a typical "treatment". The experimental design of the lab-sessions is explained in more detail in the section "Experimental Design" below (as well as in the attached PAP (Pre-Analysis Plan)).

2021-02-16

2021-04-30

Worker output in the real effort task. Bosses decision whether to "hire" worker in second round of game.

1. Worker rate set by Bosses.
2. Tips paid by Bosses

Re. Scondary Outcome 1: In some randomly selected sessions, instead of the Worker's and Bosses' payoff rate for each gram of beans sorted being set exogenously by the experimenter, Bosses will receive the combined rate, but, before the start of the game, need to decide which share of the rate to give to the worker. We are interested whether bosses matched with socially connected workers decide to pay a higher or lower piece rate to the workers.
Re. Scondary Outcome 2: In other randomly selected sessions, Bosses receive a small extra pot of money before the game, out of which they can "tip" workers after they did the real effort task (solely based on bosses own decision). We want to study whether - conditional on the output of the matched worker - bosses tip workers more or less if they have a social tie to the worker.

We plan to invite 300 SME entrepreneurs in Dar es Salaam (Tanzania) to a lab experiment, conducted in 30 sessions with around 10 entrepreneurs each. Entrepreneurs are instructed to bring along to the session a person who “either works for them, or that the entrepreneur can see hiring temporarily or permanently, if s/he needs a worker in his/her business”. We refer to the invited entrepreneurs as “Bosses”, and the persons they bring along as “Workers”. Thus, in each lab-session we plan to have 10 Bosses and the 10 Workers they bring along.

During the sessions, the "Workers" carry out a simple real-effort task, which is to sort beans into different cups depending on their colour. Workers have 8 minutes each time for the tasks, and the output is measured in grams of beans in cups without any bean of the wrong colour. Workers receive a pay-off proportional to their output. Each worker is matched with a "Boss", and Bosses also receive an additional pay-off proportional to the worker’s output. This captures the basic idea that entrepreneurs’ pay-off increases with the productivity of their workers.

A randomly chosen share of the Workers in each session are matched with the Bosses with whom they came to the session, while the other half is matched randomly with one of the remaining bosses. We can think of workers randomly matched with the Boss they arrived with as being randomly “treated” with having a social connection to their boss.

In a second round of the game, bosses and workers are matched anew, using the same method as in Round 2 (thus, they may not be matched to the same person again). Bosses have to decide if they want to let their matched Worker do the real effort task and receive pay-out based on the output produced, as in Round 2, or if they would rather not hire and instead take a fixed outside sum of money (with the worker also receiving a small fixed outside sum instead of a pay-off linked to output). The main variation that we introduce here is that in randomly selected sessions, Bosses can do this decision "anonymously", without the worker knowing who the boss is to whom they are connected. Thus, we can test, if bosses are relatively less likely to hire socially connected workers if they can "hide" this decision from the worker (and potentially his/her acquaintances).

Randomization done by computer at the start of each session

Workers, who are randomly matched to bosses twice in the session they attend, for the first and second round of the game.

No

No clusters.

300 workers

300 workers