Incentivizing Learning-By-Doing: The Role of Compensation Schemes

Joshua Graff Zivin, Lisa Kahn and Matthew Neidell

No 12320, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, 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 a piece rate plan with an extra one-time bonus tied to output. Under the bonus contract, 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, and these improvements significantly outweigh the losses to the firm from the distortionary 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. This underscores the importance of dynamic considerations in principal-agent models.

Keywords: learning-by-doing; contracts (search for similar items in EconPapers)
JEL-codes: J33 J43 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2019-04
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: S. W. Polachek, K. Tatsiramos, G. Russo, G. van Houten (eds.): Workplace Productivity and Management Practices, Research in Labor Economics 49, 2021, 139 - 178

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Related works:
Chapter: Incentivizing Learning-by-Doing: The Role of Compensation Schemes* (2021)
Working Paper: Incentivizing Learning-By-Doing: The Role of Compensation Schemes (2019)
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