Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records
AbstractWe estimate the gain in productivity that is realized by paying workers piece rates rather than fixed wages; i.e., theincentive effect. Our data come from the payroll records of a British Columbia tree-planting firm that paid its workers both piece rates and fixed wages. These data contain information on the daily productivity of workers over a period of nearly six months. Furthermore, we observe the same workers under both piece rates and fixed wages, allowing us to control for individual-specific effects in the data. We develop and estimate an agency model or worker behaviour 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 planting conditions. We use the model to derive statistical implications for the incentive effect. We demonstrate that while simple regression methods cannot identify the incentive effect (due to the endogeneity of the payment system), they can provide upper and lower bounds to this effect. We estimate those bounds to be 5% and 32% of observed productivity on piece rate contracts. We also demonstrate that the model cand be estimated structurally, wherein the firm's optimal choice of a compensation system is built directly into the estimation procedure. Structural results suggest that incentives accounted for 9.1% of observed productivity. Nous mesurons le gain de productivitÃ© rÃ©alisÃ© quand les travailleurs sont payÃ©s Ã la piÃ¨ce plutÃ´t qu'Ã taux fixe, i.e. l'effet incitatif. Nos donnÃ©es proviennent des archives d'une compagnie qui s'occupe de la plantation d'arbres en Colombie-Britannique. Cette compagnie a payÃ© ses travailleurs Ã la piÃ¨ce et Ã taux fixe. Nos donnÃ©es contiennent des informations sur la productivitÃ© et sur les salaires quotidiens des travailleurs sur une pÃ©riode de presque six mois. De plus, nous observons les mÃªmes travailleurs sous les deux systÃ¨mes de paye, ce qui nous permet de contrÃ´ler les effets spÃ©cifiques aux in
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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.
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-05-25 (All new papers)
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