Piece‐rate cuts and ratchet effects Shearer, Bruce S.
The Canadian journal of economics,
August / Août 2022, Volume:
55, Issue:
3
Journal Article
Peer reviewed
I use a quasi experiment, conducted in the field, to evaluate how the workers of an economic firm responded to threats to cut their piece rates. During the study, the piece rate paid to workers was ...initially set above the regular rate, given working conditions. In a commitment treatment this high rate was paid without any threat of revision. During a non‐commitment trial, the high rate was accompanied by a threat from management to reduce the rate if, after two days of work, average earnings were too high. The empirical results display strong ratchet effects. Workers withheld output by 16% under non‐commitment relative to commitment. The firm eventually reduced the piece rate from the initial high rate, but left it above the regular rate, giving workers the possibility to extract rents. Workers showed no tendency to restrict output during this phase of the study.
Résumé
Réduction du salaire à la pièce et effets de cliquet. Je me sers d'une quasi‐expérience, réalisée sur le terrain, pour évaluer comment les travailleurs d'une entreprise de l'économie réelle ont réagi à des menaces de réduire leur salaire à la pièce. Pendant l'étude, le salaire à la pièce versé aux travailleurs était, au départ, fixé au‐dessus du salaire habituel en raison des conditions de travail. Dans le cadre du traitement promis, ce salaire élevé a été versé sans menace de révision. Pendant un essai qui ne comportait aucune promesse, le salaire élevé a été accompagné d'une menace de réduire le salaire à la pièce si, après deux jours de travail, les gains moyens étaient trop élevés. Les résultats empiriques font ressortir de puissants effets de cliquet. Les travailleurs ont réduit leur production de 16 % sans promesse comparativement à celui avec promesse. L'entreprise a fini par réduire le salaire à la pièce par rapport au salaire élevé initial, mais le nouveau salaire était tout de même supérieur au salaire initial, donnant aux travailleurs la possibilité de bénéficier d'une rente. Pendant cette phase de l'étude, les travailleurs n'ont pas eu tendance à réduire leur productivité.
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BFBNIB, FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Data from a field experiment are used to estimate the gain in productivity that is realized when workers are paid piece rates rather than fixed wages. The experiment was conducted within a ...tree-planting firm and provides daily observations on individual worker productivity under both compensation systems. Unrestricted statistical methods estimate the productivity gain to be 20%. Since planting conditions potentially affect incentives, structural econometric methods are used to generalize the experimental results to out-of-sample conditions. The structural results suggest that the average productivity gain, outside of the experimental conditions, would be at least 21.7%.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
Risk preferences and contract choices Bago, Jean-Louis; Shearer, Bruce
Experimental economics : a journal of the Economic Science Association,
11/2022, Volume:
25, Issue:
5
Journal Article
Peer reviewed
We conducted a series of field experiments to investigate the ability of experimentally measured risk preferences to predict the contractual choices of workers in the real labour market. In a first ...set of experiments we twice measured workers’ risk preferences using the lottery approach of Holt and Laury (Am Econ Rev 92(5):1644–165, 2002). These workers subsequently participated in a contract-choice experiment, making 12 decisions. For each decision, the worker chose between his/her regular piece-rate contract and a particular fixed wage contract, each distinguished by the level of the fixed wage. One of the twelve decisions was then chosen at random and the worker was paid according to his/her choice for that decision over a period of two working days. We estimate the effect of risk preferences on contractual choices, controlling for measurement error and worker ability. Risk preferences effectively predict contract choices—risk-averse workers are more likely to select fixed-wage contracts. High-ability workers prefer piece-rates.
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CEKLJ, EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
We present results from a field experiment, designed to measure worker response to a monetary gift from their employer. The experiment took place inside a tree-planting firm paying its workforce ...incentive contracts. Firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity. We compare planter productivity—the number of trees planted per day—on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block, and thus under similar planting conditions. We find direct evidence that the gift had a significant and positive effect on daily planter productivity, controlling for planter-fixed effects, weather conditions and other random daily shocks.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We measure the cost of risk and the benefits of matching heterogeneous workers to risk levels within a firm that pays its workers piece rates. The workers of this firm are heterogeneous in two ...dimensions: risk preferences and ability. Our results suggest that workers' willingness to pay to avoid risk is heterogeneous. It can attain 40% of their expected net earnings but averages to only 1%. Moreover, the benefits to the firm of matching are relatively small: profits are predicted to increase by only 2.3%, 4% if we restrict attention to cases where matching is possible. Although labor-market sorting contributes to this result (the workers in this firm are relatively risk tolerant), it is not the primary cause. More important is the relative homogeneity of risk conditions in this firm that give rise to limited opportunities for matching.
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BFBNIB, CEKLJ, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
We conducted experiments within a firm to measure the risk preferences of workers who face substantial daily income risk. We find that these workers are significantly more risk-tolerant than ...individuals from the broader population. This is consistent with sorting: risk-tolerant workers are attracted to high-risk occupations.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We analyse how physicians respond to contractual changes and incentives within a multitasking environment. In 1999 the Quebec government (Canada) introduced an optional mixed compensation (MC) ...system, combining a fixed
per diem with a partial (relative to the traditional fee-for-service (FFS) system) fee for services provided. We combine panel survey and administrative data on Quebec physicians to evaluate the impact of this change in incentives on their practice choices. We highlight the differentiated impact of incentives on various dimensions of physician behaviour by considering a wide range of labour supply variables: time spent on seeing patients, time devoted to teaching, administrative tasks or research, as well as the volume of clinical services and average time per clinical service. Our results show that, on average, the reform induced physicians who changed from FFS to MC to reduce their volume of (billable) services by 6.15% and to reduce their hours of work spent on seeing patients by 2.57%. Their average time spent per service increased by 3.81%, suggesting a potential quality–quantity substitution. Also the reform induced these physicians to increase their time spent on teaching and administrative duties (tasks not remunerated under the fee-for-service system) by 7.9%.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural behavioral model that identifies workers' optimal reaction to ...monetary gifts received from their employer. We estimate the model using data from two separate field experiments conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labor market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labor markets by up to 10% on average and by up to 17% for certain types of workers.
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BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
We present results from a real-effort experiment, simulating actual workplace conditions, comparing the productivity of workers under fixed wages and piece rates. Workers, who were paid to enter ...data, were exposed to different degrees of peer pressure under both payment systems. The peer pressure was generated in the form of private information about the productivity of their peers. We have two main results. First, we find no level of peer pressure for which the productivity of either male or female workers is significantly higher than the productivity without peer pressure. Second, we find that very low and very high levels of peer pressure can significantly decrease productivity (particularly for men paid fixed wages). These results are consistent with models of conformism and self-motivation.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We develop and estimate an agency model of worker behavior under piece rates and fixed wages. The model implies optimal decision rules for the firm's choice of a compensation system as a function of ...working conditions. Our model also implies an upper and lower bound to the incentive effect (the productivity gain realized by paying workers piece rates rather than fixed wages) that can be estimated using regression methods. Using daily productivity data collected from the payroll records of a British Columbia tree-planting firm, we estimate these bounds to be an 8.8 and a 60.4 percent increase in productivity. Structural estimation, which accounts for the firm's optimal choice of a compensation system, suggests that incentives caused a 22.6 percent increase in productivity. However, only part of this increase represents valuable output because workers respond to incentives, in part, by reducing quality.
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BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
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