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American Economic Review: Vol. 90 No. 5 (December 2000)
AER Volume. 90, Issue 5 | 
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Performance Pay and Productivity
Article Citation
Lazear, Edward P. 2000. "Performance Pay and Productivity."
American Economic Review,
90(5): 1346-1361.
DOI: 10.1257/aer.90.5.1346
DOI: 10.1257/aer.90.5.1346
Abstract
Much of the theory in personnel economics relates to effects of monetary incentives on output, but the theory was untested because appropriate data were unavailable. A new data set for the Safelite Glass Corporation tests the predictions that average productivity will rise, the firm will attract a more able workforce, and variance in output across individuals at the firm will rise when it shifts to piece rates. In Safelite, productivity effects amount to a 44-percent increase in output per worker. This firm apparently had selected a suboptimal compensation system, as profits also increased with the change.
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Authors
Lazear, Edward P. (Stanford U)
JEL Classifications
J33: Compensation Packages; Payment Methods
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
