Time is money, but the exchange rate is ambiguous
If a person expects to receive 30 thousand for 10 hours of work, this does not mean that he is ready to work 10 hours for 30 thousand.
An interesting study was done at Stanford, which showed that time is converted into money with losses, but money in time is converted with some increase.
It makes sense that the employee needs to allocate a lot of time to the task, the specific estimate of labor costs will be higher than if it is necessary to do a similar amount of work as small independent processes.
This is very important in the new world of telecommuting, part-time and freelancing. People want to work when it’s convenient for them and are ready to take less for small, quick tasks.
Actually, now about the research itself.
- 1 About the value of time
- 2 The rate “time — money” is stable
- 3 The rate “money – time” is unstable, the hourly rate increases with the increase of the amount
- 4 Fixed-time mode – on average, participants asked for $10.76 per hour
- 5 The mode of fixed money – the same participants for the same tasks increased the rates more than six times
- 6 The influence of the payment method does not depend on the availability of money and time
- 7 The payment is higher if it is already boring in advance
- 8 Practical implementation
About the value of time
The value of time is variable, and people are inconsistent in their estimation. The cost of time depends on various factors, including the reward structure. We will describe two main approaches.
Fixed time – the task is determined by its duration. The performers calculate how much money they want for that working hour. For example, you need to supervise children for five hours. When deciding whether to respond to such an ad, the nanny recognizes the minimum amount of money she is willing to work five hours for.
In the mode of fixed money, a certain amount is assigned for the performance of a specific task. And applicants are already calculating how long they are willing to work for her. At the same time, if the task is completed faster than expected, the executor will still receive the stipulated amount in full. For example, you order a taxi ride to the airport for $50. When making a decision, the driver takes into account how far he is willing to drive for this fixed payment.
The rate “time — money” is stable
In a fixed-time setting, people rate each hour of their work roughly the same regardless of how long they have to work. The hourly rate does not increase as the number of hours in the task increases. Because probably the money account activates a more analytical mode of processing. People approach the assessment of their time from the point of view of economics and mathematics: “I need to work so many hours, I will multiply what each of my hours costs by the number of hours and call the amount.” Attention is drawn here to the economic value of time.
The rate “money – time” is unstable, the hourly rate increases with the increase of the amount
In the mode of fixed money per hour is unstable. The high price of the task does not cause the applicant to be willing to work more hours, as the employer might expect. It causes an increase in requirements for the minimum rate. The higher the price employers set, the higher the applicants rate their hour of work.
This is probably the explanation. Counting activates emotional mode.
When it comes to fixed money, people start thinking about their feelings and what they expect from work. If offered more money, they want more pay per hour because they think the work will be harder or less enjoyable, especially if it’s long and boring.
Stanford scientists obtained all this information thanks to several experiments. The study participants, 3,335 Amazon Mechanical Turk (MTurk, USA) workers, agreed to complete online tasks for money. The researchers set another task: counting the number of zeros on a page of numbers.
Fixed-time mode – on average, participants asked for $10.76 per hour
In the first fixed-time experiment, the researchers offered participants specific time intervals (10, 20, 30, 60, 120, or 240 minutes) and asked them to indicate the minimum amount needed to complete the task. And they noticed this. Whether the task was for 10, 20, 30, 60, 120 or 240 minutes, its duration did not affect the hourly rate. On average, participants asked for $10.76 per hour.
The mode of fixed money – the same participants for the same tasks increased the rates more than six times
In the fixed money mode, participants were asked how much they were willing to work for a certain amount of money. The “certain amount” was the median requested payment for each time period from the previous experiment (that is, the payment higher and lower than which there was an equal number of responses).
For example, the average participant requested compensation of $1.50 for working on a 10-minute task in the fixed-time mode—then in the fixed-money mode, participants were asked how long they would be willing to work for $1.50. This method resulted in the following fixed payout amounts: $1.5, $3, $10, $20, and $40.
And here a significant difference appeared between the six payment amounts (in the previous experiment, which corresponded to six time periods). The larger the amount announced, the higher the hourly rate the participants wanted. For the lowest payment amount ($1.50), the hourly rate was the same in the fixed-time and fixed-money modes. For the largest payment amount ($40), participants valued their time more than six times.
On the graph it looks like this:
The influence of the payment method does not depend on the availability of money and time
Then the researchers entered from the other side. They decided to see how much people would pay not to work.
Changing from spending time to earn money to paying money to get time produced the same results as the other experiments. The cost per hour was higher in the fixed money mode compared to the fixed time mode.
The payment is higher if it is already boring in advance
In another experiment, a more interesting task was added to the boring counting of zeros: viewing images of faces and identifying six basic emotions based on facial expressions. Whether the task was interesting or boring influenced participants’ evaluation of their time.
They wanted more money for boring tasks than for fun ones. That is, interesting tasks made time shorter.
Interestingly, task type had an even greater impact on results than payment mode.
Also, as in the other experiments, in the fixed-money condition, hourly rate expectations increased as the amount promised increased. Only for fun tasks, the expected rate increased much more modestly. It increased about threefold, while for boring tasks the difference was more than sixfold.
Here is how this difference is explained. In fixed-money mode, when making decisions, people focus on their feelings about how much time they will lose on this job. Boring tasks add here the expected long painful build-up of boredom, and the hourly reward for this future suffering was demanded higher by the participants.
Another experiment confirmed this. In Experiment 4, as in the previous cases, all participants were presented with a one-page example of the counting problem (the same one used in the previous experiments). Participants were then asked to report how unpleasant they expected the task would be. Specifically, they were told the following: “Suppose you complete this task for 10 (30, 60, or 120) minutes. How painful, on average, is every 10 minutes of doing the task for 10 (30, 60, or 120) minutes? (0 = not at all; 100 = extremely)”. The mean expected unpleasantness of the task in the 10-min regimen was significantly lower than in the 60-min and 120-min regimens. That is, the increase in the hourly rate can be explained by the expectation of an increase in unpleasantness, which also explains the difference in the increase in rates between fun and boring tasks.
Understanding how people value their time and make payment decisions is important for both employers and employees. This will help to properly plan working hours and payment, create conditions that will satisfy both parties. It will also come in handy when creating a reward system or when employees correctly assess their compensation. And it will also help not to burn out, but it is not certain.