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Performance pay and productivity of low- and high-ability workers

Author

Listed:
  • Franceschelli, Ignacio
  • Galiani, Sebastian
  • Gulmez, Eduardo

Abstract

Existing literature has mainly focused on analyses of the overall effect of a change in the incentive scheme. Lazear (Lazear, E., 2000, "Performance pay and productivity", American Economic Review, 90, 1346-1361.), for example, estimates the average increase in productivity after a firm switches from an hourly-wage scheme to a piece-rate plus basic-wage scheme. His paper does not, however, account for the fact that many workers remained within the basic-wage range after the change was made in the incentive scheme. In the present paper we explore how the incentive effect might have been different for those workers seeking the basic wage, and those workers seeking the piece-rate component of the wage. Interestingly, the change in productivity is approximately the same in percentage terms for both types of workers.

Suggested Citation

  • Franceschelli, Ignacio & Galiani, Sebastian & Gulmez, Eduardo, 2010. "Performance pay and productivity of low- and high-ability workers," Labour Economics, Elsevier, vol. 17(2), pages 317-322, April.
  • Handle: RePEc:eee:labeco:v:17:y:2010:i:2:p:317-322
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    References listed on IDEAS

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    1. 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.
    2. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    3. Gibbons, Robert, 1987. "Piece-Rate Incentive Schemes," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 413-429, October.
    4. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 917-962.
    5. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
    6. Joshua D. Angrist, 2004. "Treatment effect heterogeneity in theory and practice," Economic Journal, Royal Economic Society, vol. 114(494), pages 52-83, March.
    7. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
    8. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    9. Bruce Shearer, 2004. "Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 513-534.
    10. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    11. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
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    Citations

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    Cited by:

    1. Gary Charness & David Masclet & Marie Claire Villeval, 2014. "The Dark Side of Competition for Status," Management Science, INFORMS, vol. 60(1), pages 38-55, January.
    2. Christian Pfeifer, 2014. "Base Salaries, Bonus Payments, and Work Absence among Managers in a German Company," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(5), pages 523-536, November.
    3. Masclet, David & Peterle, Emmanuel & Larribeau, Sophie, 2015. "Gender differences in tournament and flat-wage schemes: An experimental study," Journal of Economic Psychology, Elsevier, vol. 47(C), pages 103-115.
    4. repec:spr:jlabre:v:39:y:2018:i:1:d:10.1007_s12122-017-9260-9 is not listed on IDEAS
    5. repec:eee:labeco:v:46:y:2017:i:c:p:189-199 is not listed on IDEAS

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