Hierarchy and reciprocity in labor relationships

We compare the wage-effort relationship in a game with a two-tier hierarchy (twelve employees who are subordinate to one employer) to that in a game with a three-tier hierarchy (nine employees who are subordinate to three managers, who are subordinate to one employer). In both games, the employer has one work relationship with each of the other participants. Each of these participants first receives a wage offer from the nearest higher hierarchical level. In the three-tier hierarchy, the manager has to split a wage budget that the employer assigns to pay the employees’ wages. Managers and employees then engage in a costly production process, from which only the employer can receive earnings. We find wage secrecy and the hierarchical distance to the employer to have adverse effects on the motivation to provide effort in the three-tier hierarchy. The results suggest that organizational distance reduces reciprocal responses, as the manager, who assigns the wages to the employees, cannot be reciprocated directly.