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Performance Pay and Productivity

Edward P. Lazear
The American Economic Review
Vol. 90, No. 5 (Dec., 2000), pp. 1346-1361
Stable URL: http://www.jstor.org/stable/2677854
Page Count: 16
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Performance Pay and Productivity
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Abstract

Much of the theory in personnel economics relates to effects of monetary incentives on output, but the theory was untested because appropriate data were unavailable. A new data set for the Safelite Glass Corporation tests the predictions that average productivity will rise, the firm will attract a more able workforce, and variance in output across individuals at the firm will rise when it shifts to piece rates. In Safelite, productivity effects amount to a 44-percent increase in output per worker. This firm apparently had selected a suboptimal compensation system, as profits also increased with the change.

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