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Relative and Absolute Incentives: Evidence on Worker Productivity

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Author Info
Oriana Bandiera (STICERD
LSE

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Abstract

Using personnel data, we compare worker productivity under a relative incentive scheme -where pay is based on individual productivity relative to the average productivity of the group- to productivity under piece rates. We find that productivity is at least 50% higher under piece rates. Further analysis shows this is due to workers partially internalizing the negative externality their effort imposes on others under the relative incentive scheme. Workers internalize this externality to a greater extent when they work with fewer co-workers, and a greater share of their coworkers are their close friends. The relationship among workers has no affect on productivity under piece rates

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 277.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:277

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Keywords: absolute incentives relative incentives social preferences.

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Find related papers by JEL classification:
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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  5. Paarsch, Harry J. & Shearer, Bruce, 1997. "Fixed Wages, Piece Rates, and Intertemporal Productivity: a Study of tree Planters in British Columbia," Cahiers de recherche 9702, Université Laval - Département d'économique. [Downloadable!]
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  6. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December. [Downloadable!] (restricted)
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  7. Jones, Derek C & Kato, Takao, 1995. "The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data," American Economic Review, American Economic Association, vol. 85(3), pages 391-414, June. [Downloadable!] (restricted)
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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. Pedro Rey Biel & Steffen Huck, 2005. "Endogenous Leadership in Teams," Microeconomics 0506004, EconWPA. [Downloadable!]
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