INTENTION MATTERS IN EMPLOYMENT CONTRACT

Two treatments are conducted to test the effect of employers' generosity on employees' effort level. In the first treatment, the intention is not observable to the employee while in the second treatment, the intention is observable. Higher wage is reciprocated with significantly higher effort level when the intention of generosity is observable. When intention of generosity is not observable, the positive relationship between wage and effort is not completely absent as employees still reciprocate to higher wage but with weaker tendency.