Wages and Labour Productivity: the role of Performance-Related Pay in Italian firms

Mirella Damiani, Fabrizio Pompei and Andrea Ricci

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyses the role of Performance Related Pay (PRP) agreements on labour productivity and wages. Its main contribution is thus to investigate the effects of PRP on both dimensions, i.e. productivity and distribution, whereas most of the studies of related literature are restricted to one of those aspects. All estimates are performed for a large sample of manufacturing and service Italian firms with more than five employees and a restricted sample including only unionised firms. It allows us to focus on a relevant feature of industrial relations represented by worker representation and its role in local wage setting in the Italian economy. The expected positive link between PRP and firm performance has been confirmed in all estimates, also controlling for a rich set of covariates. Furthermore, the comparison of productivity estimates with those for wages allows us to ascertain that payments by results might be not only rent-sharing devices, but schemes that substantially lead to efficiency enhancements. These findings have been validated by a number of robustness checks, also taking into account endogeneity by using instrumental variables and the treatments of 3SLS. The paper argues that well designed policies, that circumvent the limited implementation of PRP practices, would guarantee productivity improvement. The real effectiveness of these measures would not be weakened under union governance.

Keywords: Efficiency; Wages; Performance–related pay; unions. (search for similar items in EconPapers)
JEL-codes: D24 J31 J33 J51 (search for similar items in EconPapers)
Date: 2013-12-10
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Working Paper: Wages and Labour Productivity: the role of performance-related pay in Italian firms (2013)
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