Incentive Pay and Firm Productivity: Evidence from China

Zhangfeng Jin () and Shiyuan Pan

No 479, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: This study examines the causes and consequences of incentive pay adoption among Chinese manufacturing firms. First, we find that a higher degree of labor scarcity encourages firms to adopt more incentive pay. Second, using an instrumental variables approach, we find that a 10 percentage point increase in the intensity of incentive pay results in 38% higher firm productivity. Third, the average productivity differences between SOEs and non-SOEs decrease by about 65% after controlling differences in incentive pay adoption. Therefore, facilitating incentive pay adoption among firms with better labor endowments (e.g. SOEs) increases productivity while reduces resource misallocation in developing countries.

Keywords: Incentive Pay; Firm Productivity; Labor Scarcity; China; Instrumental Variables (search for similar items in EconPapers)
JEL-codes: J33 M52 O14 O33 P31 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-cna, nep-eff, nep-hrm, nep-lma and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:479

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