Intrinsic Motivation & Wages

The theory of donative-labour hypothesis essentially states that wage-earners accept lower
pay if they find intrinsic (non-monetary) value in their jobs. This would mean that if
employees find satisfaction in their jobs, they’re willing to donate labour to the company, i.e.,
work overtime without asking for compensation. These workers are willing to exchange
monetary incentives with intrinsic and social incentives. “The extreme bound of the donative-
labour hypothesis is voluntary work, where individuals enjoy non-monetary compensation for
their activity to such an extent that they are willing to work for nothing. Volunteering can
also be partial, and in certain organisational environments workers may be ready to donate at
least a part of their work effort without monetary compensation.” (Freeman 1997).

Several research papers based on profit & non-profit wage differentials have found evidence
which directly aligns with donative-labour hypothesis. Weisbrod in 1983 indicated a
significant non-profit wage gap after studying the difference between the lawyers working in
profit & non-profit sectors. Preston in 1989 found similar results for different types of white-
collar pay compared across 2 sectors. Leete in 2001 commented ‘‘the pattern of nonprofit
wage differentials across disaggregated occupations and industries is suggestive of a number
of forces affecting nonprofit wages simultaneously’’.

The hypothesis revealed that the factors driving the differentials are:
(i) Higher levels of satisfaction of intrinsically motivated workers in the non-profit industry,
assuming homogeneity in intrinsic motivations.
(ii) the difference in workers’ intrinsic motivations in the two sectors, assuming worker
heterogeneity in intrinsic motivations.

Intrinsic motivations may vary significantly within industries, and between profit and non-
profit sectors. Also, according to Leete (2001), the profit/non-profit wage differential may
depend on a series of other factors. For example, in an era of increasing government debt, the
differential may be caused by the higher dependence of non-profit organisation revenues on
government contracts won in public procurement auctions with significant rebates. Preston
result—of a positive non-profit/profit wage differential where the non-profit industry is
highly subsidized—is explained by the argument that non-profit managers have lower cost
constraints & the negative wage gap may be determined by quality differences between
workers in the two sectors.

According to Preston intrinsically motivated individuals are more productive and, for this
reason, if a part of this greater productivity is remunerated by their employers, they may end
up having higher wages than their non-intrinsically motivated colleagues.

In some works on the economics of identity (Akerlof and Kranton 2005;Goette et al. 2006), it
has been shown that identity can substitute economic incentives in motivating individuals to
pursue organizational goals.
This argument seems to suggest a hypothesis similar to the labour donative hypothesis in
non-profit organizations, since it would imply that insiders whose identity has been moulded
by organizational culture end up earning lower incomes than outsiders and new entrants.
Intrinsic motivations have a dynamic impact on productivity, since they relate to a person’s
own ability to develop new skills and competencies. From this perspective, the donative-
labour hypothesis would represent a static effect, since it pertains to a one-shot trade-off
between monetary and non-monetary remuneration.

This perspective is more similar to the arguments put forward by Rob and Zemsky (2002),
who show that a corporate culture which places value on intrinsic preferences for cooperative
effort can increase future economic returns.

Intrinsic motivations are described in the specialised literature as attitudes or drivers of

human behaviour extending beyond satisfaction of mere physiological and security needs
which require monetary, or in any event material, remuneration. In the Maslow scale, higher-
level needs are linked to non-material, or psychological, aspects of human activity.Even
though their satisfaction is not necessary for physiological survival, they have a central role
in defining psychological health.

Even if the monetary remuneration is kept to a minimum, workers may be satisfied with their
jobs where immaterial needs are satisfied. From another perspective, some workers may
decide to refuse jobs that satisfy intrinsic motivations poorly, even where the wages are
higher. Intrinsic motivations relate to interest in the activity performed, good relationships
with other colleagues and superiors, and involvement and autonomy in decision-making at
the operational and strategic level. The intrinsic nature is specific to the task and directed to
the flow of activity, to goals that are self-defined, and to the obligations of personal and
social norms—benevolence, identity, and fairness.

Intrinsic motivations can imply both self-regarding references, as in the case of professional
growth, and other-regarding preferences, as in the case of attention paid to the needs of the
community. Both of these aspects are closely linked to the perception of the organizational
environment, for example, to procedural and distributive fairness, and to involvement in
decision-making. Hence, complementarity more than substitution can be expected among the
different kinds of preferences linked to intrinsic motivations.