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Worker Stress and Performance Pay: German Survey Evidence

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  • Baktash, Mehrzad B.

    (University of Trier)

  • Heywood, John S.

    (University of Wisconsin, Milwaukee)

  • Jirjahn, Uwe

    (University of Trier)

Abstract

While performance pay can benefit firms and workers by increasing productivity and wages, it has also been associated with a deterioration of worker health. The transmission mechanisms for this deterioration remain in doubt. We examine the hypothesis that increased stress is one transmission mechanism. Using unique survey data from the German Socio-Economic Panel, we find performance pay consistently and importantly associates with greater stress even controlling for a long list of economic, social and personality characteristics. It also holds in instrumental variable estimations accounting for the potential endogeneity of performance pay. Moreover, we show that risk tolerance moderates the relationship between performance pay and stress. The risk tolerant receiving performance pay suffer less stress than the risk averse.

Suggested Citation

  • Baktash, Mehrzad B. & Heywood, John S. & Jirjahn, Uwe, 2021. "Worker Stress and Performance Pay: German Survey Evidence," IZA Discussion Papers 14939, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14939
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    6. Nicole Andelic & Julia Allan & Keith A. Bender & Daniel Powell & Ioannis Theodossiou, 2024. "Performance‐related pay, mental and physiological health," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 63(1), pages 3-25, January.
    7. Green, Colin P. & Heywood, John S., 2022. "Does Performance Pay Influence Hours of Work?," IZA Discussion Papers 15474, Institute of Labor Economics (IZA).
    8. Chadi, Cornelia, 2023. "Too stressed to sleep? Downsizing, job insecurity and sleep behavior," Economics & Human Biology, Elsevier, vol. 51(C).
    9. Mehrzad B. Baktash & John S. Heywood & Uwe Jirjahn, 2024. "Variable Pay and Work Hours: Does Performance Pay Reduce the Gender Time Gap?," Research Papers in Economics 2024-08, University of Trier, Department of Economics.
    10. Marco Clemens, 2024. "Bonuses, Profit-sharing and Job Satisfaction: the More, the Better?," IAAEU Discussion Papers 202406, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
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    More about this item

    Keywords

    stress; worker health; performance pay; risk tolerance;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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