Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records
AbstractWe develop and estimate an agency model of worker behavior under piece rates and fixed wages. The model implies optimal decision rules for the firm's choice of a compensation system as a function of working conditions. Our model also implies an upper and lower bound to the incentive effect (the productivity gain realized by paying workers piece rates rather than fixed wages) that can be estimated using regression methods. Using daily productivity data collected from the payroll records of a British Columbia tree-planting firm, we estimate these bounds to be an 8.8 and a 60.4 percent increase in productivity. Structural estimation, which accounts for the firm's optimal choice of a compensation system, suggests that incentives caused a 22.6 percent increase in productivity. However, only part of this increase represents valuable output because workers respond to incentives, in part, by reducing quality. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoPaper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9623.
Date of creation: 1996
Date of revision:
Other versions of this item:
- Paarsch, Harry J & Shearer, Bruce, 2000. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 59-92, February.
- Harry J. Paarsch & Bruce S. Shearer, 1996. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," CIRANO Working Papers 96s-31, CIRANO.
- Paarsch, H-J & Shearer, B, 1996. "Piece Rates, Fixed Wages, and Incentive Effects : Statistical Evidence From Payroll Records," Papers 9623, Laval - Recherche en Energie.
- D2 - Microeconomics - - Production and Organizations
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-05-25 (All new papers)
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