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Incentive Effect of Piece-Rate Contracts: Evidence from Two Small Field Experiments

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  • Shi Lan

    (University of Washington)

Abstract

We conducted two field experiments in a tree-thinning setting. In one experiment, we switched the pay of a randomly chosen half (the treatment group) from hourly wages to piece-rate pay. Workers in the control group were paid hourly wages throughout. In the second experiment, workers were switched from hourly to piece-rate pay all at once. The difference-in-difference and before-after estimates suggest that the productivity increase was on the order of 20-23 percent. Although the sample size is small, the estimates are statistically significant and robust. While the quality did not drop, the study highlights the measurement costs in setting up the right level of piece rates. We also discuss the strengths and weaknesses of using randomized control (and treatment) groups or not in conducting field experiments within firms.

Suggested Citation

  • Shi Lan, 2010. "Incentive Effect of Piece-Rate Contracts: Evidence from Two Small Field Experiments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-34, July.
    • Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:61
    DOI: 10.2202/1935-1682.2539
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    2. Tanjim Hossain & John A. List, 2012. "The Behavioralist Visits the Factory: Increasing Productivity Using Simple Framing Manipulations," Management Science, INFORMS, vol. 58(12), pages 2151-2167, December.
    3. Heywood, John S. & Wei, Xiangdong & Ye, Guangliang, 2011. "Piece rates for professors," Economics Letters, Elsevier, vol. 113(3), pages 285-287.
    4. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2011. "Field Experiments with Firms," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 63-82, Summer.
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    6. Omar Al-Ubaydli & John A. List, 2019. "How natural field experiments have enhanced our understanding of unemployment," Nature Human Behaviour, Nature, vol. 3(1), pages 33-39, January.
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    9. Tom Chang & Joshua Graff Zivin & Tal Gross & Matthew Neidell, 2016. "Particulate Pollution and the Productivity of Pear Packers," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 141-169, August.
    10. Kathrin Manthei & Dirk Sliwka & Timo Vogelsang, 2021. "Performance Pay and Prior Learning—Evidence from a Retail Chain," Management Science, INFORMS, vol. 67(11), pages 6998-7022, November.
    11. Sauermann, Jan, 2014. "The Heterogeneous Effects of Bonus Pay on Performance Outcomes: Evidence from Personnel Data," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100568, Verein für Socialpolitik / German Economic Association.
    12. Stephen F. Hamilton & Timothy J. Richards & Aric P. Shafran & Kathryn N. Vasilaky, 2022. "Farm labor productivity and the impact of mechanization," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(4), pages 1435-1459, August.
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    14. Chi, Wei & Liu, Tracy Xiao & Qian, Xiaoye & Ye, Qing, 2019. "An experimental study of incentive contracts for short- and long-term employees," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 366-383.
    15. Kato, Takao & Shu, Pian, 2011. "Competition, Group Identity, and Social Networks in the Workplace: Evidence from a Chinese Textile Firm," IZA Discussion Papers 6219, Institute of Labor Economics (IZA).

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