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Worker Payments and Incentives: A Classroom Experiment

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  • Linda S. Ghent

Abstract

This classroom experiment demonstrates the effects of time-based pay and output-based pay on worker behavior and productivity. Students will discover that workers paid a piece rate per unit produced will have incentives to work harder, but will sacrifice quality for increased quantity of output. In addition, workers will self-sort into jobs with different payment systems based on expected productivity and effort. Last, while labor costs per unit at firms offering output-based pay are generally lower than those at other firms, students will understand some of the reasons why this method of payment may not be widely used across occupations and industries. The paper concludes with several suggestions for extending the experiment to expand its illustrative value in a variety of economics courses.

Suggested Citation

  • Linda S. Ghent, 2010. "Worker Payments and Incentives: A Classroom Experiment," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 10(1), pages 14-20, Summer.
  • Handle: RePEc:mts:jrnlee:v:10:y:2010:i:1:p:14-20
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    File URL: http://frank.mtsu.edu/~jee/2010/2pp14to20MS1009.pdf
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    Keywords

    incentives; wages; productivity;

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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