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Employment Contracts and Stress: Experimental Evidence

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Listed:
  • Allan, Julia L.
  • Andelic, Nicole
  • Bender, Keith A.
  • Powell, Daniel
  • Stoffel, Sandro
  • Theodossiou, Ioannis

Abstract

A growing literature has found a link between performance-related pay (PRP) and poor health, but the causal direction of the relationship is not known. To address this gap, the current paper utilises a crossover experimental design to randomly allocate subjects into a work task paid either by performance or a fixed payment. Stress is measured through self-reporting and salivary cortisol. The study finds that PRP subjects had significantly higher cortisol levels and self-rated stress than those receiving fixed pay, ceteris paribus. By circumventing issues of self-report and self-selection, these results provide novel evidence for the detrimental effect PRP may have on health.

Suggested Citation

  • Allan, Julia L. & Andelic, Nicole & Bender, Keith A. & Powell, Daniel & Stoffel, Sandro & Theodossiou, Ioannis, 2021. "Employment Contracts and Stress: Experimental Evidence," GLO Discussion Paper Series 838, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:838
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Artz, Benjamin & Heywood, John S., 2022. "Performance Pay and Work Hours: US Survey Evidence," IZA Discussion Papers 15412, Institute of Labor Economics (IZA).
    2. Thomas Dohmen & Ingrid M. T. Rohde & Tom Stolp, 2023. "Tournament incentives affect perceived stress and hormonal stress responses," Experimental Economics, Springer;Economic Science Association, vol. 26(4), pages 955-985, September.
    3. Baktash, Mehrzad B. & Heywood, John S. & Jirjahn, Uwe, 2023. "Does Performance Pay Increase the Risk of Marital Instability?," GLO Discussion Paper Series 1305, Global Labor Organization (GLO).
    4. Baktash, Mehrzad B. & Heywood, John S. & Jirjahn, Uwe, 2022. "Worker stress and performance pay: German survey evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 276-291.
    5. Nicole Andelic & Julia Allan & Keith A. Bender & Daniel Powell & Ioannis Theodossiou, 2024. "Performance‐related pay, mental and physiological health," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 63(1), pages 3-25, January.
    6. Green, Colin P. & Heywood, John S., 2022. "Does Performance Pay Influence Hours of Work?," IZA Discussion Papers 15474, Institute of Labor Economics (IZA).
    7. Adams, Scott J. & Heywood, John S. & Ullman, Darin F. & Venkatesh, Shrathinth, 2022. "Social jobs and the returns to drinking," Economics & Human Biology, Elsevier, vol. 46(C).
    8. Green, Colin P. & Heywood, John S., 2023. "Performance pay, work hours and employee health in the UK," Labour Economics, Elsevier, vol. 84(C).

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    More about this item

    Keywords

    performance-related pay; stress; experiment; cortisol;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • I0 - Health, Education, and Welfare - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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