Does Group-Based Incentive Pay Lead To Higher Productivity? Evidence from a Complex and Interdependent Industrial Production Process
Anders Frederiksen (),
Daniel Baltzer Schjødt Hansen and
Colleen Flaherty Manchester ()
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Daniel Baltzer Schjødt Hansen: Aarhus University
Colleen Flaherty Manchester: University of Minnesota
No 14986, IZA Discussion Papers from Institute of Labor Economics (IZA)
Group-based incentive pay is attractive in contexts where production is complex and interdependent, yet freeriding is a paramount concern. We assess the introduction of group-based performance pay in a modern industrial production setting using difference-in-difference estimation. Performance increased by 19 percent, with three quarters coming from increased performance of existing workers and the remaining from selection; workers became more efficient and were absent less often. We find little evidence of freeriding; quantile regressions show increased performance throughout the distribution of workers. Features of the design and implementation process created trust, a common goal, and a shared identity, which limited freeriding.
Keywords: difference-in-differences; performance pay; group-based incentive; freeriding; incentive effects; selection effects; absenteeism; efficiency; performance; productivity; trust (search for similar items in EconPapers)
JEL-codes: J33 L23 M5 (search for similar items in EconPapers)
Pages: 30 pages
New Economics Papers: this item is included in nep-bec, nep-eff, nep-hrm and nep-lma
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