IDEAS home Printed from https://ideas.repec.org/a/eee/labeco/v17y2010i2p317-322.html
   My bibliography  Save this article

Performance pay and productivity of low- and high-ability workers

Author

Listed:
  • Franceschelli, Ignacio
  • Galiani, Sebastian
  • Gulmez, Eduardo

Abstract

Existing literature has mainly focused on analyses of the overall effect of a change in the incentive scheme. Lazear (Lazear, E., 2000, "Performance pay and productivity", American Economic Review, 90, 1346-1361.), for example, estimates the average increase in productivity after a firm switches from an hourly-wage scheme to a piece-rate plus basic-wage scheme. His paper does not, however, account for the fact that many workers remained within the basic-wage range after the change was made in the incentive scheme. In the present paper we explore how the incentive effect might have been different for those workers seeking the basic wage, and those workers seeking the piece-rate component of the wage. Interestingly, the change in productivity is approximately the same in percentage terms for both types of workers.

Suggested Citation

  • Franceschelli, Ignacio & Galiani, Sebastian & Gulmez, Eduardo, 2010. "Performance pay and productivity of low- and high-ability workers," Labour Economics, Elsevier, vol. 17(2), pages 317-322, April.
    • Handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:317-322
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5371(09)00044-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paarsch, Harry J & Shearer, Bruce, 2000. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 59-92, February.
    2. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 917-962.
    3. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
    4. Joshua D. Angrist, 2004. "Treatment effect heterogeneity in theory and practice," Economic Journal, Royal Economic Society, vol. 114(494), pages 52-83, March.
    5. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
    6. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    7. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    8. Gibbons, Robert, 1987. "Piece-Rate Incentive Schemes," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 413-429, October.
    9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    10. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    11. Bruce Shearer, 2004. "Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 513-534.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status," Management Science, INFORMS, vol. 60(1), pages 38-55, January.
    2. Anders Frederiksen & Daniel Baltzer Schjødt Hansen & Colleen Flaherty Manchester, 2024. "Group-Based Incentives and Individual Performance: A Study of the Effort Response," ILR Review, Cornell University, ILR School, vol. 77(2), pages 273-293, March.
    3. Frederiksen, Anders & Hansen, Daniel Baltzer Schjødt & Flaherty Manchester, Colleen, 2022. "Does Group-Based Incentive Pay Lead To Higher Productivity? Evidence from a Complex and Interdependent Industrial Production Process," IZA Discussion Papers 14986, Institute of Labor Economics (IZA).
    4. Christian Pfeifer, 2014. "Base Salaries, Bonus Payments, and Work Absence among Managers in a German Company," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(5), pages 523-536, November.
    5. Haoming Liu & Jingfeng Lu & Yohanes E. Riyanto & Zhe Wang, 2024. "Contests with multiplicative sabotage effect," Theory and Decision, Springer, vol. 97(3), pages 499-526, November.
    6. Mills, Brian M., 2017. "Technological innovations in monitoring and evaluation: Evidence of performance impacts among Major League Baseball umpires," Labour Economics, Elsevier, vol. 46(C), pages 189-199.
    7. Masclet, David & Peterle, Emmanuel & Larribeau, Sophie, 2015. "Gender differences in tournament and flat-wage schemes: An experimental study," Journal of Economic Psychology, Elsevier, vol. 47(C), pages 103-115.
    8. Chi, Wei & Liu, Tracy Xiao & Qian, Xiaoye & Ye, Qing, 2019. "An experimental study of incentive contracts for short- and long-term employees," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 366-383.
    9. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status (preprint)," Working Papers halshs-01090241, HAL.
    10. Maurice J. G. Bun & Leo C. E. Huberts, 2018. "The Impact of Higher Fixed Pay and Lower Bonuses on Productivity," Journal of Labor Research, Springer, vol. 39(1), pages 1-21, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cardella, Eric & Depew, Briggs, 2016. "Testing for the Ratchet Effect: Evidence from a Real-Effort Work Task," IZA Discussion Papers 9981, Institute of Labor Economics (IZA).
    2. Cardella, Eric & Depew, Briggs, 2018. "Output restriction and the ratchet effect: Evidence from a real-effort work task," Games and Economic Behavior, Elsevier, vol. 107(C), pages 182-202.
    3. Román, Francisco J., 2009. "An analysis of changes to a team-based incentive plan and its effects on productivity, product quality, and absenteeism," Accounting, Organizations and Society, Elsevier, vol. 34(5), pages 589-618, July.
    4. Omar Al‐Ubaydli & Steffen Andersen & Uri Gneezy & John A. List, 2015. "Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 538-561, January.
    5. Fuhai Hong & Tanjim Hossain & John A. List & Migiwa Tanaka, 2018. "Testing The Theory Of Multitasking: Evidence From A Natural Field Experiment In Chinese Factories," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(2), pages 511-536, May.
    6. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    7. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    8. Selay Sahan & Euan Phimister, 2022. "Worker Incentives in the Banking Industry," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(2), pages 259-284, April.
    9. Sabrina Teyssier, 2008. "Les Modes de Rémunération comme Mécanismes Sélectifs de la Main d’oeuvre : Fondements Théoriques et Estimations Empiriques," Working Papers 0818, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    10. Kato, Takao & Kauhanen, Antti & Salmi, Julia, 2013. "Empirical Evidence on the Dynamics of Incentive Plans," ETLA Working Papers 20, The Research Institute of the Finnish Economy.
    11. Kevin J. Stiroh, 2007. "Playing For Keeps: Pay And Performance In The Nba," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 145-161, January.
    12. Shi Lan, 2010. "Incentive Effect of Piece-Rate Contracts: Evidence from Two Small Field Experiments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-34, July.
    13. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, December.
    14. Baktash, Mehrzad B. & Heywood, John S. & Jirjahn, Uwe, 2022. "Worker stress and performance pay: German survey evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 276-291.
    15. repec:lan:wpaper:2928 is not listed on IDEAS
    16. Levenson, Alec R. & Zoghi, Cindy & Gibbs, Michael & Benson, George, 2011. "Optimizing Incentive Plan Design: A Case Study," IZA Discussion Papers 5985, Institute of Labor Economics (IZA).
    17. Cadena, Brian C. & Smith, Austin C., 2022. "Performance pay, productivity, and strategic opt-out: Evidence from a community health center," Journal of Public Economics, Elsevier, vol. 206(C).
    18. Jared Rubin & Anya Samek & Roman Sheremeta, 2016. "Incentivizing Quantity and Quality of Output: An Experimental Investigation of The Quantity-Quality Trade-Off," Artefactual Field Experiments 00438, The Field Experiments Website.
    19. Bryson, Alex & Buraimo, Babatunde & Simmons, Rob, 2011. "Do salaries improve worker performance?," Labour Economics, Elsevier, vol. 18(4), pages 424-433, August.
    20. Hyun Seok (Huck) Lee & Saravanan Kesavan & Camelia Kuhnen, 2022. "When do group incentives for retail store managers work?," Production and Operations Management, Production and Operations Management Society, vol. 31(8), pages 3077-3095, August.
    21. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:317-322. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/labeco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.