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Money or Monitoring: Evidence on Improving Worker Effort

Author

Listed:
  • Jing Cai
  • Sai Luo
  • Shing-Yi Wang

Abstract

Higher compensation and increased monitoring are two common strategies for addressing the moral hazard problem between firms and workers. In a field experiment with new hires at an automobile manufacturing firm in China, we randomly varied both signing bonuses and monitoring intensity. Both interventions increased worker output but through different channels: signing bonuses led to longer working hours without significant gains in performance, while enhanced monitoring improved performance as evaluated by managers. Additionally, bonuses reduced quit rates, whereas monitoring raised them. These results suggest that firms should carefully consider their primary objectives and weigh these trade-offs when designing optimal labor contracts.

Suggested Citation

  • Jing Cai & Sai Luo & Shing-Yi Wang, 2025. "Money or Monitoring: Evidence on Improving Worker Effort," NBER Working Papers 33977, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33977
    Note: DEV LS
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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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