IDEAS home Printed from https://ideas.repec.org/a/bla/brjirl/v61y2023i1p188-213.html
   My bibliography  Save this article

Tax breaks for incentive pay, productivity and wages: Evidence from a reform in Italy

Author

Listed:
  • Mirella Damiani
  • Fabrizio Pompei
  • Andrea Ricci

Abstract

This paper analyses the impact of a tax break on incentive pay (introduced in Law n. 208/2015) on labour productivity and average wages in Italian firms. We use a unique source of firm‐level information drawn from a large representative survey of Italian firms merged with the ORBIS archive. By applying difference‐in‐differences methods, we obtain the following results. First, the tax break has a positive effect on both labour productivity and average wages, although the positive effect on average wages is not confirmed by robustness tests. Second, productivity impacts are mainly driven by family firms in northern regions, where firms benefit from the more dynamic business environment in which they operate. These results take into account unobserved heterogeneity and endogeneity issues.

Suggested Citation

  • Mirella Damiani & Fabrizio Pompei & Andrea Ricci, 2023. "Tax breaks for incentive pay, productivity and wages: Evidence from a reform in Italy," British Journal of Industrial Relations, London School of Economics, vol. 61(1), pages 188-213, March.
    • Handle: RePEc:bla:brjirl:v:61:y:2023:i:1:p:188-213
    DOI: 10.1111/bjir.12676
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/bjir.12676
    Download Restriction: no
    File URL: https://libkey.io/10.1111/bjir.12676?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Sraer & David Thesmar, 2007. "Performance and Behavior of Family Firms: Evidence from the French Stock Market," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 709-751, June.
    2. Noélie Delahaie & Richard Duhautois, 2019. "Profit‐Sharing and Wages: An Empirical Analysis Using French Data between 2000 and 2007," British Journal of Industrial Relations, London School of Economics, vol. 57(1), pages 107-142, March.
    3. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    4. Colin P. Green & John S. Heywood, 2011. "Profit Sharing, Separation and Training," British Journal of Industrial Relations, London School of Economics, vol. 49(4), pages 623-642, December.
    5. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    6. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    7. Thomas Lemieux & W. Bentley MacLeod & Daniel Parent, 2009. "Performance Pay and Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 1-49.
    8. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    9. Francesco D'Amuri & Raffaella Nizzi, 2017. "Recent developments of Italy�s industrial relations system," Questioni di Economia e Finanza (Occasional Papers) 416, Bank of Italy, Economic Research and International Relations Area.
    10. Anne Gielen & Marcel Kerkhofs & Jan Ours, 2010. "How performance related pay affects productivity and employment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(1), pages 291-301, January.
    11. Michael Raith, 2008. "Specific knowledge and performance measurement," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1059-1079, December.
    12. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    13. Richard J. Long & Tony Fang, 2012. "Do Employees Profit from Profit Sharing? Evidence from Canadian Panel Data," ILR Review, Cornell University, ILR School, vol. 65(4), pages 899-927, October.
    14. Andrea Ciarini & Silvia Lucciarini, 2017. "Collective Bargaining and Occupational Welfare in Italy," Economia & lavoro, Carocci editore, issue 2, pages 143-156.
    15. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    16. Richard B. Freeman & Joseph R. Blasi & Douglas L. Kruse, 2010. "Introduction to "Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options"," NBER Chapters, in: Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options, pages 1-37, National Bureau of Economic Research, Inc.
    17. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    18. Antti Kauhanen & Sami Napari, 2012. "Performance Measurement and Incentive Plans," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 645-669, July.
    19. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    20. Lucia Naldi & Carmelo Cennamo & Guido Corbetta & Luis Gomez–Mejia, 2013. "Preserving Socioemotional Wealth in Family Firms: Asset or Liability? The Moderating Role of Business Context," Entrepreneurship Theory and Practice, , vol. 37(6), pages 1341-1360, November.
    21. David Marsden & Richard Belfield, 2010. "Institutions and the Management of Human Resources: Incentive Pay Systems in France and Great Britain," British Journal of Industrial Relations, London School of Economics, vol. 48(2), pages 235-283, June.
    22. Hristos Doucouliagos & Patrice Laroche & Douglas L. Kruse & T. D. Stanley, 2020. "Is Profit Sharing Productive? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 58(2), pages 364-395, June.
    23. Weitzman, Martin L, 1983. "Some Macroeconomic Implications of Alternative Compensation Systems," Economic Journal, Royal Economic Society, vol. 93(372), pages 763-783, December.
    24. Boeri, Tito & Lucifora, Claudio & Murphy, Kevin J. (ed.), 2013. "Executive Remuneration and Employee Performance-Related Pay: A Transatlantic Perspective," OUP Catalogue, Oxford University Press, number 9780199669806, Decembrie.
    25. Hipp, Christiane & Grupp, Hariolf, 2005. "Innovation in the service sector: The demand for service-specific innovation measurement concepts and typologies," Research Policy, Elsevier, vol. 34(4), pages 517-535, May.
    26. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    27. Tuomas Pekkarinen & Chris Riddell, 2008. "Performance Pay and Earnings: Evidence from Personnel Records," ILR Review, Cornell University, ILR School, vol. 61(3), pages 297-319, April.
    28. Gelman, Andrew & Stern, Hal, 2006. "The Difference Between," The American Statistician, American Statistical Association, vol. 60, pages 328-331, November.
    29. Fabrizio Pompei & Mirella Damiani & Andrea Ricci, 2019. "Family firms, performance-related pay, and the great crisis: evidence from the Italian case," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(5), pages 1193-1225.
    30. Douglas L. Kruse & Richard B. Freeman & Joseph R. Blasi, 2010. "Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options," NBER Books, National Bureau of Economic Research, Inc, number krus08-1, October.
    31. Kruse, Douglas L. & Freeman, Richard B. & Blasi, Joseph R. (ed.), 2010. "Shared Capitalism at Work," National Bureau of Economic Research Books, University of Chicago Press, number 9780226056951, December.
    32. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    33. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    34. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    35. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-463, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cirillo, Valeria & Mina, Andrea & Ricci, Andrea, 2024. "Digital technologies, labor market flows and training: Evidence from Italian employer-employee data," Technological Forecasting and Social Change, Elsevier, vol. 209(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jirjahn, Uwe & Rienzo, Cinzia, 2024. "Working from Home and Performance Pay: Individual or Collective Payment Schemes?," IZA Discussion Papers 17234, Institute of Labor Economics (IZA).
    2. Jirjahn, Uwe & Mohrenweiser, Jens, 2023. "Variable Payment Schemes and Productivity: Do Individual-Based Schemes Really Have a Stronger Influence than Collective Ones?," IZA Discussion Papers 16267, Institute of Labor Economics (IZA).
    3. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Sara Martinez-de-Morentin, 2017. "Performance Measurement and Incentive Intensity," Journal of Labor Research, Springer, vol. 38(4), pages 496-546, December.
    4. Kato, Takao & Kauhanen, Antti, 2013. "Performance Pay and Enterprise Productivity: The Details Matter," ETLA Working Papers 21, The Research Institute of the Finnish Economy.
    5. Noélie Delahaie & Richard Duhautois, 2019. "Profit‐Sharing and Wages: An Empirical Analysis Using French Data between 2000 and 2007," British Journal of Industrial Relations, London School of Economics, vol. 57(1), pages 107-142, March.
    6. Vladimir Pecheu, 2021. "Profit Sharing as a Bargaining Weapon Against Unions," Working Papers halshs-03247551, HAL.
    7. Mirella Damiani & Fabrizio Pompei & Andrea Ricci, 2016. "Performance related pay, productivity and wages in Italy: a quantile regression approach," International Journal of Manpower, Emerald Group Publishing Limited, vol. 37(2), pages 344-371, May.
    8. Vladimir Pecheu, 2021. "Profit Sharing as a Bargaining Weapon Against Unions," AMSE Working Papers 2135, Aix-Marseille School of Economics, France.
    9. Petri Böckerman & Alex Bryson & Pekka Ilmakunnas, 2013. "Does high involvement management lead to higher pay?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 176(4), pages 861-885, October.
    10. Uwe Jirjahn & Jens Mohrenweiser, 2019. "Performance Pay and Applicant Screening," British Journal of Industrial Relations, London School of Economics, vol. 57(3), pages 540-575, September.
    11. Stefania Cardinaleschi & Mirella Damiani & Fabrizio Pompei, 2020. "Knowledge-intensive sectors and the role of collective performance-related pay," Industry and Innovation, Taylor & Francis Journals, vol. 27(5), pages 480-512, May.
    12. Uwe Jirjahn, 2018. "The adoption and termination of profit sharing for employees: does management’s attitude play a role?," Applied Economics, Taylor & Francis Journals, vol. 50(2), pages 108-127, January.
    13. Long, Richard J. & Fang, Tony, 2013. "Profit Sharing and Workplace Productivity: Does Teamwork Play a Role?," IZA Discussion Papers 7869, Institute of Labor Economics (IZA).
    14. Claudio Lucifora, 2015. "Performance-related pay and labor productivity," IZA World of Labor, Institute of Labor Economics (IZA), pages 152-152, May.
    15. Noélie Delahaie & Richard Duhautois, 2013. "L'impact des dispositifs collectifs de partage des bénéfices sur les rémunérations en France. Une analyse empirique sur la période 1999-2007," Working Papers halshs-00967479, HAL.
    16. Bias, Daniel & Chen, Lin & Lochner, Benjamin & Schmid, Thomas, 2020. "Measuring workers' financial incentives," FAU Discussion Papers in Economics 07/2020, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    17. Belloc, Filippo, 2022. "Profit sharing and innovation across organizational layers," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 598-623.
    18. Baktash, Mehrzad B. & Heywood, John S. & Jirjahn, Uwe, 2022. "Worker stress and performance pay: German survey evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 276-291.
    19. Bryson, Alex & Clark, Andrew E. & Freeman, Richard B. & Green, Colin P., 2016. "Share capitalism and worker wellbeing," Labour Economics, Elsevier, vol. 42(C), pages 151-158.
    20. John S. Heywood & Uwe Jirjahn, 2014. "Variable Pay, Industrial Relations and Foreign Ownership: Evidence from Germany," British Journal of Industrial Relations, London School of Economics, vol. 52(3), pages 521-552, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:brjirl:v:61:y:2023:i:1:p:188-213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.