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An incentive to increase laborers' productivity with adopting performance-based wages and paid vacations

Author

Listed:
  • Yui Nakamura

    (Faculty of Economics, Fukuoka University)

Abstract

This paper shows that introducing a paid-vacation system tied to performance is effective in increasing the motivation of laborers to make effort and exercise high productivity. This effect is similar to the effects of implementing a performance-based wage system, on which many earlier papers have focused. We also found that the paid-vacation system can be particularly effective in companies where high-skilled laborers are required and labor hours are long. In addition, laborers' motivation can be greater when a company offers different performance-based compensation schemes, such as the performance-based system and the paid-vacation system, because each laborer has heterogeneous preference for leisure.

Suggested Citation

  • Yui Nakamura, 2011. "An incentive to increase laborers' productivity with adopting performance-based wages and paid vacations," Economics Bulletin, AccessEcon, vol. 31(1), pages 1018-1024.
    • Handle: RePEc:ebl:ecbull:eb-10-00178
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P95.pdf
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    References listed on IDEAS

    as
    1. Ewing, Bradley T., 1996. "Wages and performance-based pay: Evidence from the NLSY," Economics Letters, Elsevier, vol. 51(2), pages 241-246, May.
    2. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
    3. Thomas Dohmen & Armin Falk, 2011. "Performance Pay and Multidimensional Sorting: Productivity, Preferences, and Gender," American Economic Review, American Economic Association, vol. 101(2), pages 556-590, April.
    4. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    5. Daniel Parent, 1999. "Methods of Pay and Earnings: A Longitudinal Analysis," ILR Review, Cornell University, ILR School, vol. 53(1), pages 71-86, October.
    6. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-463, July.
    7. Seiler, Eric, 1984. "Piece Rate vs. Time Rate: The Effect of Incentives on Earnings," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 363-376, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    paid vacation; performance-based wage; incentive; effort;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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