Incentivizing Learning-by-Doing: The Role of Compensation Schemes*

Joshua Graff Zivin, Lisa B. Kahn and Matthew Neidell

A chapter in Workplace Productivity and Management Practices, 2021, vol. 49, pp 139-178 from Emerald Group Publishing Limited

Abstract: In this chapter, we examine the impact of pay-for-performance incentives on learning-by-doing. We exploit personnel data on fruit pickers paid under two distinct compensation contracts: a standard piece rate plan and one with an extra one-time bonus tied to output. Under the latter, we observe bunching of performance just above the bonus threshold, suggesting workers distort their behavior in response to the discrete bonus. Such bunching behavior increases as workers gain experience. At the same time, the bonus contract induces considerable learning-by-doing for workers throughout the productivity distribution who presumably hope to one day hit the target, and these improvements significantly outweigh the losses to the firm from the bunching. In contrast, under the standard piece rate contract, we find minimal evidence of bunching and only small performance improvements at the bottom of the productivity distribution. Our results suggest that contract design can help foster learning on the job, underscoring the importance of dynamic considerations in principle-agent models.

Keywords: Learning-by-doing; piece rate compensation; agriculture workers; bunching; bonus pay; dynamic incentives; J24; J41 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Incentivizing Learning-By-Doing: The Role of Compensation Schemes (2019)
Working Paper: Incentivizing Learning-By-Doing: The Role of Compensation Schemes (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rleczz:s0147-912120210000049006

DOI: 10.1108/S0147-912120210000049006

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