Relative and Absolute Incentives: Evidence on Worker Productivity
AbstractWe use personnel data to compare worker productivity under a relative incentive scheme, where worker pay is negatively related to the average productivity of co-workers, with productivity under piece rates – where pay is based on individual productivity alone. We find that for the average worker, productivity is at least 50% higher under piece rates. We show this is because workers partially internalize the negative externality they impose on others under the relative incentive scheme and do so to a greater extent when they work alongside their close friends. The results illustrate the importance of understanding how workers behave in the presence of externalities when designing incentive schemes.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4431.
Date of creation: Jun 2004
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- Oriana Bandiera (STICERD & LSE, 2004. "Relative and Absolute Incentives: Evidence on Worker Productivity," Econometric Society 2004 North American Summer Meetings 277, Econometric Society.
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
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