Focus on Research

November 16, 2012 12:17 pm

Something for the weekend

Given the current economic climate many households are trying to save money and tips on how to cut down on expenditure frequently appear in magazine articles. Now academics in Canada have come up with a novel suggestion – when you go to the bank to withdraw money ask for crisp, new notes.

Fabrizio Di Muro at the University of Winnipeg and Theodore Noseworthy of the College of Management and Economics at the University of Guelph have found that the physical appearance of money can alter spending behaviour. Individuals are keen to hold onto new currency, but happier to part with tatty notes.

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“Consumers tend to infer that worn bills are used and contaminated, whereas crisp bills give them a sense of pride in owning bills that can be spent around others,” says the authors.

In a series of experiments consumers were given either worn notes or crisp new ones and then asked to complete a series of shopping tasks. The authors found that consumers tended to spend more if they had worn notes and were also more likely to to break a worn larger note than pay the exact amount in new notes of a lower denomination.

The academics also tested the accepted finding that individuals tend to spend more when holding notes of lower denominations than they do when holding one large note of the same value. Their results indicate that the physical appearance of money can “enhance, attenuate or even reverse this effect”.

The paper ‘Money isn’t everything but it helps if it doesn’t look used: how the physical appearance of money influences spending’ will be published in the J ournal of Consumer Research next year.

Light-fingered employees are a problem for all employers, however the issue is particularly severe in the retail trade. Tatiana Sandino, an associate professor in accounting and management at Harvard Business School and co-author Clara Xiaoling Chen, an assistant professor of accountancy at the University of Illinois at Urbana-Champaign cite figures from the National Retail Security survey in the US which says that employee theft of stock contributed to a loss of $15.9bn in 2008.

To try to discover what might dissuade employees from stealing, the two academics wondered if higher remuneration might help. They hypothesised that higher wages might encourage employees to feel more warmly towards their employers, that these employees – if they were paid more – would be less inclined to steal because they would not want to lose their jobs and paying a larger sum in the first place would attract more honest employees.

Using two data sets and including factors such as workers’ different socioeconomic environments and how many people the stores employed, the authors found that paying a larger salary caused a drop in employee theft and could, in certain circumstances, make fiscal sense.

A cost-benefit analysis found that what an employer saved in cash and inventory theft covered about 39 per cent of the cost of the wage increase. The authors also found that stock theft was greater where employees worked together; the authors suggest that this might be because it was harder to identify who was the thief or that the co-workers created an atmosphere that encouraged theft.

“Our study suggests that an increase in wages will decrease theft, but won’t fully pay off,” says Prof Sandino. The pair suggest that raising salaries might be the right course of action if other benefits – such as reduced employee turnover or higher employee productivity – account for at least 61 per cent of the wage increase.

Can wages buy honesty? The relationship between relative wages and employee theft appears in the Journal of Accounting Research.

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