Abstract

This study analyzes the impact of misconceptions regarding wages, specifically the discrepancy between perceived gross earnings and actual net income. This study is grounded in the traditional labor-leisure tradeoff model and enhanced through insights drawn from labor economics; this research investigates the extent to which incorrect wage perceptions shape motivation, work hours, and work effort. The theoretical framework illustrates rational decision-making processes within the context of wage misperceptions by employing a Cobb-Douglas utility function and constrained optimization techniques. A survey was also conducted with college community participants, integrating hypothetical job scenarios alongside effort-based tasks. A Rational Actor Index was developed to assess the rationality of the decision-making process. Through cross-tabulations and logistic regression analyses, this study examines the implications of variables such as age, gender, financial literacy, and wage preferences on labor choices. The findings reveal that wage misconceptions lead to less optimal behavior, significantly affecting productivity and job selection. This research contributes to labor economics by merging theoretical models with empirical insights on how perception gaps influence real-world decision-making.

Advisor

Moledina, Amyaz

Department

Economics

Disciplines

Business

Keywords

Wage Perception, Money Illusion, Labor Economics

Publication Date

2025

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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© Copyright 2025 Shaunta Palmer