Employee work effort, skills, performance incentives and public transit systems organizational performance

This conceptual paper is about the performance effects of incentivized transit systems also providing wage rate incentives to employees to increase their skills-aided efforts to improve performance. It derives conceptual models, imposes them on transit systems, and using their data estimates a wage, cost and share equations as a system. It finds beneficial effects of these incentives and divides the cost change from employee effort into the effects of skills, effort itself, and economies of scale. It finds effort's cost increasing effect moderated by the effects of economies of scale and skills and a nonlinear (inverted U-shaped) relationship between wages and effort from which two groups of transit systems are identified. In the majority group, employees can be given incentives in the form of small wage premiums to increase their effort to improve transit system performance. And in the other, employees hold back performance improvement efforts to maintain their current high wages. Finally, the study divides the cost effect of directly provided service into the substitution effect and the lump-sum effect and finds the latter's effect large and negative and more than compensates for the cost increasing effect of input substitution from the lower wages.