Non-linear Incentives, Worker Productivity, and Firm Profits: Evidence from a Quasi-Experiment

Richard Freeman, Wei Huang () and Teng Li

No 14125, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Using administrative data from a major Chinese insurance firm that raised its sales targets and rewards for insurance agents in a highly non-linear incentive system, we find that the improvement in productivity far outweighed the costs associated with bunching distortions and other gaming behaviors. Labor turnover decreased, which suggests that the extra pay for workers exceeded the non-pecuniary cost of extra effort by workers, and thus improved their well-being. The firm gained about two-thirds of the higher net output, making the reform profitable. Analysis of non-linear incentive systems should accordingly focus more on the productivity-enhancing than on the distortionary effects.

Keywords: non-linear incentives; insurance commission; strategic gaming behavior; productivity; turnover rates (search for similar items in EconPapers)
JEL-codes: J33 M52 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2021-02
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-eff, nep-hrm, nep-ias, nep-lma, nep-sea and nep-tra
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Citations: View citations in EconPapers (1)

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Working Paper: Non-linear Incentives, Worker Productivity, and Firm Profits: Evidence from a Quasi-experiment (2019)
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