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Performance Pay, Risk Attitudes and Job Satisfaction

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Author Info
Thomas Cornelißen
John S. Heywood
Uwe Jirjahn

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Abstract

We present a sorting model in which workers with greater ability and greater risk tolerance move into performance pay jobs and contrast it with the classic agency model of performance pay. Estimates from the German Socio-Economic Panel confirm testable implications drawn from our sorting model. First, prior to controlling for earnings, workers in performance pay jobs have higher job satisfaction, a proxy for on-the-job utility. Second, after controlling for the higher earnings associated with performance pay, the job satisfaction of those in performance pay jobs is the same as those not in such jobs. Third, those workers in performance pay jobs who have greater risk tolerance routinely report greater job satisfaction. While these findings support the sorting model, they would not be suggested by the classic agency model.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.89879.de/diw_sp0136.pdf
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Publisher Info
Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers with number 136.

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Length: 39 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp136

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Related research
Keywords: Performance Pay; Worker Heterogeneity; Ability; Risk Preferences; Sorting;

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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References listed on IDEAS
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  22. Christian Grund & Dirk Sliwka, 2006. "Performance Pay and Risk Aversion," IZA Discussion Papers 2012, Institute for the Study of Labor (IZA). [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pfeifer, Christian, 2008. "A Note on Risk Aversion and Labour Market Outcomes: Further Evidence from German Survey Data," IZA Discussion Papers 3523, Institute for the Study of Labor (IZA). [Downloadable!]
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