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Pay enough, don’t pay too much or don’t pay at all? An empirical study of the non-monotonic impact of incentives on job satisfaction

  • Pouliakas, Konstantinos

This paper attempts to test the non-monotonic effect of monetary incentives on job satisfaction. Specifically, 8 waves (1998-2005) of the British Household Panel Survey (BHPS) are used to investigate the ceteris paribus association between the intensity of bonus/profit-sharing payments and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that relatively ‘small’ bonuses exert a significant negative effect on worker satisfaction. In contrast, job utility is found to rise only in response to ‘large’ bonus payments, primarily in skilled, non-unionized private sector jobs. The empirical evidence of the paper is therefore consistent with a ‘V-effect’ of incentives, suggesting that employers wishing to motivate their staff should indeed “pay enough or don’t pay at all”.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10031.

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Date of creation: 14 Aug 2008
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Handle: RePEc:pra:mprapa:10031
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  1. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
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