IDEAS home Printed from https://ideas.repec.org/p/cir/cirwor/94s-16.html
   My bibliography  Save this paper

Piece-Rates, Principal-Agent, and Productivity Profiles: Parametric and Semi-Parametric Evidence

Author

Listed:
  • Bruce Shearer

Abstract

This paper exploits the natural link between observed wages and productivity that is inherent in piece-rate wage data to estimate worker productivity profiles. Piece-rate wages are functions of the parameters of the compensation system and worker effort. Identifying productivity from such data requires separating out these effects. This can be accomplished by explicitly modelling the principal-agent relationship between the worker and the firm and deriving optimal decision rules for worker effort. This approach is applied to historical payroll data collected from a British Columbia copper mine. The salient aspects of the mine's production process are incorporated into the model, namely, asymmetric information, team production and heterogeneous workers. Solving the model for equilibrium worker effort implies a censored wage distribution which is estimated both parametrically and semi-parametrically. Methods to control for unobserved heterogeneity among workers are also used. Productivity profiles are then constructed from the resulting parameter estimates. Results suggest that productivity profiles were increasing concave functions of worker tenure. Cette étude utilise le lien naturel qui existe entre les salaire observés et la productivité des travailleurs lorsque les travailleurs sont payés à la pièce afin d'estimer les profils de productivité des travailleurs. Quand les travailleurs sont payés à la pièce, les salaires observés sont une fonction des paramètres du système de compensation et du niveau d'effort des travailleurs. L'identification de la productivité des travailleurs nécessite la séparation de ces deux effets dans les données. Ceci peut être accompli en modélisant la relation principal-agent qui existe entre la firme et le travailleur tout en trouvant les règles de comportement optimal de l'effort du travailleur. Cette approche est appliquée à des données de salaires historiques, colligées à partir des archives d'une mine en Colombie-Britannique. Les aspects importants de la technologie de la mine sont incorporés dans le modèle, ie. l'asymétrie d'information qui existe entre la firme et les travailleurs, la production en équipe et les travailleurs hétérogènes. Le modèle est résolu pour le niveau d'effort du travailleur en équilibre. Celui-ci implique une distribution de salaires censorés qui est estimée de façon paramétrique et semi-paramétrique tout en contrôlant pour l'hétérogénéité inobservable des travailleurs. Les profils de productivité sont construits à partir des paramètres estimés. Les résultats suggèrent que les profils de productivité étaient des fonctions croissantes et concaves de l'ancienneté du travai

Suggested Citation

  • Bruce Shearer, 1994. "Piece-Rates, Principal-Agent, and Productivity Profiles: Parametric and Semi-Parametric Evidence," CIRANO Working Papers 94s-16, CIRANO.
    • Handle: RePEc:cir:cirwor:94s-16
    as

    Download full text from publisher

    File URL: https://cirano.qc.ca/files/publications/94s-16.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christensen, Bent Jesper & Kiefer, Nicholas M., 1991. "The Exact Likelihood Function for an Empirical Job Search Model," Econometric Theory, Cambridge University Press, vol. 7(4), pages 464-486, December.
    2. Powell, James L, 1986. "Symmetrically Trimmed Least Squares Estimation for Tobit Models," Econometrica, Econometric Society, vol. 54(6), pages 1435-1460, November.
    3. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    4. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    5. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    6. repec:cup:etheor:v:7:y:1991:i:4:p:464-86 is not listed on IDEAS
    7. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
    9. Joanne Salop & Steven Salop, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 619-627.
    10. Gunderson, Morley, 1975. "Male-Female Wage Differentials and the Impact of Equal Pay Legislation," The Review of Economics and Statistics, MIT Press, vol. 57(4), pages 462-469, November.
    11. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
    12. Hutchens, Robert M, 1989. "Seniority, Wages and Productivity: A Turbulent Decade," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 49-64, Fall.
    13. Joanne Salop & Steven C. Salop, 1976. "Self-selection and turnover in the labor market," Special Studies Papers 80, Board of Governors of the Federal Reserve System (U.S.).
    14. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-148, February.
    Full references (including those not matched with items on IDEAS)

    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. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    2. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    3. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
    4. William J. Carrington, 2015. "Do We Know Why Earnings Fall with Job Displacement? Working Paper: 2015-01," Working Papers 49908, Congressional Budget Office.
    5. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Alberto Bayo-Moriones, 2001. "Seniority-based pay: is it used as a motivation device?," Working Papers 0103, Departament Empresa, Universitat Autònoma de Barcelona, revised May 2001.
    7. William J. Carrington & Bruce Fallick, 2017. "Why Do Earnings Fall with Job Displacement?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(4), pages 688-722, October.
    8. Christian Grund & Dirk Sliwka, 2007. "Reference-Dependent Preferences and the Impact of Wage Increases on Job Satisfaction: Theory and Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 313-335, June.
    9. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    10. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2010. "Is seniority-based pay used as a motivational device? Evidence from plant-level data," Research in Labor Economics, in: Jobs, Training, and Worker Well-being, pages 155-187, Emerald Group Publishing Limited.
    11. Benoit Dostie, 2011. "Wages, Productivity and Aging," De Economist, Springer, vol. 159(2), pages 139-158, June.
    12. Dohmen, Thomas J., 2004. "Performance, seniority, and wages: formal salary systems and individual earnings profiles," Labour Economics, Elsevier, vol. 11(6), pages 741-763, December.
    13. Kawaguchi, Daiji, 2003. "Human capital accumulation of salaried and self-employed workers," Labour Economics, Elsevier, vol. 10(1), pages 55-71, February.
    14. William J. Carrington & Bruce Fallick, 2014. "Why Do Earnings Fall with Job Displacement?," Working Papers (Old Series) 1405, Federal Reserve Bank of Cleveland.
    15. Grund, Christian & Sliwka, Dirk, 2003. ""The Further We Stretch the Higher the Sky" - On the Impact of Wage Increases on Job Satisfaction," Bonn Econ Discussion Papers 1/2003, University of Bonn, Bonn Graduate School of Economics (BGSE).
    16. Mincer, Jacob, 1997. "The Production of Human Capital and the Life Cycle of Earnings: Variations on a Theme," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 26-47, January.
    17. Ohkusa, Yasushi, 1995. "Testing for the matching hypothesis in Japanese manufacturing," Japan and the World Economy, Elsevier, vol. 7(2), pages 175-198, July.
    18. George Neumann, 1996. "Search Models and Duration Data," Econometrics 9602008, University Library of Munich, Germany, revised 07 Mar 1996.
    19. Idson, Todd L & Valletta, Robert G, 1996. "Seniority, Sectoral Decline, and Employee Retention: An Analysis of Layoff Unemployment Spells," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 654-676, October.
    20. Macera, Rosario, 2018. "Intertemporal incentives under loss aversion," Journal of Economic Theory, Elsevier, vol. 178(C), pages 551-594.
    21. Ericson, Thomas, 2004. "Personnel training: a theoretical and empirical review," Working Paper Series 2005:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.

    More about this item

    Keywords

    ; Modèle du principal-agent ; Productivité de travail; Système de prime; Modèle de régression censorée ; Estimations semi-paramétriques;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Statistics

    Access and download statistics

    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:cir:cirwor:94s-16. 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: Webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/ciranca.html .

    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.