Money or Monitoring: Evidence on Improving Worker Effort

Jing Cai, Sai Luo and Shing-Yi Wang

No 33977, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C93 J24 J30 M52 O15 (search for similar items in EconPapers)
Date: 2025-06
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