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Performance Related Pay and Firm Productivity: New Evidence from a Quasi-Natural Experiment in Italy

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Author Info

  • Lucifora, Claudio

    ()
    (Università Cattolica del Sacro Cuore)

  • Origo, Federica

    ()
    (University of Bergamo)

Abstract

This paper investigates the causal effect of a switch from fixed wages to collective performance-related pay on firm productivity, exploiting an exogenous variation in the institutional environment regulating collective bargaining. We find that the introduction of collective performance related pay significantly increases productivity by around 3-5 per cent, but such effect varies greatly by firm size, industry and union density. We show that the design of the PRP scheme – in terms of number and type of parameters used – is also relevant for firm productivity.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6483.

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Length: 29 pages
Date of creation: Apr 2012
Date of revision:
Publication status: forthcoming as “Performance-Related Pay and Firm Productivity: Evidence from a Reform in the Structure of Collective Bargaining” in: Industrial and Labor Relations Review, 2014
Handle: RePEc:iza:izadps:dp6483

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Related research

Keywords: performance related pay; productivity; unions;

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References

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  1. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 361-408, October.
  2. Wooldridge, Jeffrey M. & Imbens, Guido, 2009. "Recent Developments in the Econometrics of Program Evaluation," Scholarly Articles 3043416, Harvard University Department of Economics.
  3. Corneo Giacomo & Lucifora Claudio, 1993. "Wage formation under union threat effects : theory and empirical evidence," CEPREMAP Working Papers (Couverture Orange) 9318, CEPREMAP.
  4. Cahuc, P. & Dormont, B., 1992. "Profit-Sharing: Does It Increase Productivity and Employment? A Theoretical Model and Empirical Evidence of French Micro Data," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 92.45, Université Panthéon-Sorbonne (Paris 1).
  5. Casey Ichniowski & Kathryn L. Shaw, 2009. "Insider Econometrics: Empirical Studies of How Management Matters," NBER Working Papers 15618, National Bureau of Economic Research, Inc.
  6. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(3), pages 917-962, August.
  7. Piero, Casadio, 2003. "Wage formation in the Italian private sector after the 1992-93 income policy agreements," MPRA Paper 29396, University Library of Munich, Germany.
  8. Charles Brown, 1992. "Wage Levels and Method of Pay," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 366-375, Autumn.
  9. repec:ese:iserwp:96-14 is not listed on IDEAS
  10. Origo, Federica, 2009. "Flexible pay, firm performance and the role of unions. New evidence from Italy," Labour Economics, Elsevier, Elsevier, vol. 16(1), pages 64-78, January.
  11. Andrea Brandolini & Piero Casadio & Piero Cipollone & Marco Magnani & Alfonso Rosolia, 2007. "Employment Growth in Italy in the 1990s: Institutional Arrangements and Market Forces," AIEL Series in Labour Economics, AIEL - Associazione Italiana Economisti del Lavoro, in: Nicola Acocella & Riccardo Leoni (ed.), Social Pacts, Employment and Growth. A Reappraisal of Ezio Tarantelli’s Thought, edition 1, chapter 4, pages 31-68 AIEL - Associazione Italiana Economisti del Lavoro.
  12. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
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Cited by:
  1. Damiani, Mirella & Pompei, Fabrizio & Ricci, Andrea, 2013. "Wages and Labour Productivity: the role of Performance-Related Pay in Italian firms," MPRA Paper 52126, University Library of Munich, Germany.

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