Piece-Rates, Principal-Agent, and Productivity Profiles: Parametric and Semi-Parametric Evidence

This paper exploits the natural link between observed wages and productivity that is inherent in piece-rate wage data to estimate worker productivity profiles. Piece-rate wages are functions of the parameters of the compensation system and worker effort. Identifying productivity from such data requires separating out these effects. This can be accomplished by explicitly modelling the principal-agent relationship between the worker and the firm and deriving optimal decision rules for worker effort. This approach is applied to historical payroll data collected from a British Columbia copper mine. The salient aspects of the mine's production process are incorporated into the model, namely, asymmetric information, team production and heterogeneous workers. Solving the model for equilibrium worker effort implies a censored wage distribution which is estimated both parametrically and semi-parametrically. Methods to control for unobserved heterogeneity among workers are also used. Productivity profiles are then constructed from the resulting parameter estimates. Results suggest that productivity profiles were increasing concave functions of worker tenure. Cette étude utilise le lien naturel qui existe entre les salaire observés et la productivité des travailleurs lorsque les travailleurs sont payés à la pièce afin d'estimer les profils de productivité des travailleurs. Quand les travailleurs sont payés à la pièce, les salaires observés sont une fonction des paramètres du système de compensation et du niveau d'effort des travailleurs. L'identification de la productivité des travailleurs nécessite la séparation de ces deux effets dans les données. Ceci peut être accompli en modélisant la relation principal-agent qui existe entre la firme et le travailleur tout en trouvant les règles de comportement optimal de l'effort du travailleur. Cette approche est appliquée à des données de salaires historiques, colligées à partir des archives d'une mine en Colombie-Britannique. Les aspects importants de la technologie de la mine sont incorporés dans le modèle, ie. l'asymétrie d'information qui existe entre la firme et les travailleurs, la production en équipe et les travailleurs hétérogènes. Le modèle est résolu pour le niveau d'effort du travailleur en équilibre. Celui-ci implique une distribution de salaires censorés qui est estimée de façon paramétrique et semi-paramétrique tout en contrôlant pour l'hétérogénéité inobservable des travailleurs. Les profils de productivité sont construits à partir des paramètres estimés. Les résultats suggèrent que les profils de productivité étaient des fonctions croissantes et concaves de l'ancienneté du travai, Modèle du principal-agent ; Productivité de travail; Système de prime; Modèle de régression censorée ; Estimations semi-paramétriques

On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments

We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both 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 labour-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 labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.gift giving, structural models, field experiments

Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment

The, often observed, positive correlation between incentive intensity and risk has been explained in two ways: the presence of transaction costs as determinants of contracts and the sorting of risk-tolerant individuals into firms using high-intensity incentive contracts. The empirical importance of sorting is perhaps best evaluated by directly measuring the risk tolerance of workers who have selected into incentive contracts under risky environments. We use experiments, conducted within a real firm, to measure the risk preferences of a sample of workers who are paid incentive contracts and face substantial daily income risk. Our experimental results indicate the presence of sorting; Workers in our sample are risk-tolerant. Moreover, their level of tolerance is considerably higher than levels observed for samples of individuals representing broader populations. Interestingly, the high level of risk tolerance suggests that both sorting and transaction costs are important determinants of contract choices when workers have heterogeneous preferences.Risk aversion, sorting, incentive contracts, field experiments

Male-Female Productivity Differentials: the Role of Ability and Incentives

We consider the response to incentives as an explanation for productivity differences within a firm that paid its workers piece rates. We provide a framework within which observed productivity differences can be decomposed into two parts: one due to differences in ability and the other due to differences in the response to incentives. We apply this decomposition to male and female workers a tree-planting firm in the province of British Columbia, Canada. We provide evidence that individuals do react differently to incentives. However, while the women in our sample reacted slightly more to incentives than did the men, the average difference is not statistically significant. The productivity differential that men enjoyed arose because of differences in ability, strength in our application.Productivity, Gender, Compensation, Incentives

Male-Female Productivity Differentials: the Role of Ability and Incentives (revised)

We consider the response to incentives as an explanation for productivity differences within a firm that paid its workers piece rates. We provide a framework within which observed productivity differences can be decomposed into two parts: one due to differences in ability and the other due to differences in the response to incentives. We apply this decomposition to male and female workers from a tree-planting firm in the province of British Columbia, Canada. We provide evidence that individuals do react differently to incentives. However, while the women in our sample reacted slightly more to incentives than did the men, the average difference is not statistically significant. The productivity differential that men enjoyed arose because of differences in ability, strength in our application.Productivity, Gender, Compensation, Incentives

Work Sharing and Productivity : Evidence from a Natural Experiment

This paper is the first to examine empirically how work sharing influences workers' productivity, using a unique data set from a large Canadian firm. This firm has adopted a work sharing scheme for one year, which allows us to introduce a natural experiment approach of comparing workers' productivity before and after the implementation of work sharing. We find that work sharing has led to a significant decrease in labor productivity. Cet article examine empiriquement l'impact du partage du travail sur la productivité des travailleurs d'une grande firme canadienne. L'application de la semaine réduite de travail pendant un an au sein de cette entreprise nous permet de comparer analytiquement la productivité des employés avant et après l'adoption de ce programme. Nos résultats révèlent que l'expérimentation de la semaine réduite de travail provoque une baisse significative de la productivité des travailleurs.Productivity, Work Sharing, Work Organisation Methods, Productivité, partage du travail, modes d'organisation du travail

Labour Supply, Work Effort and Contract Choice: Theory and Evidence on Physicians

We develop and estimate a generalized labour supply model that incorporates work effort into the standard consumption-leisure trade-off. We allow workers a choice between two contracts: a piece rate contract, wherein he is paid per unit of service provided, and a mixed contract, wherein he receives an hourly wage and a reduced piece rate. This setting gives rise to a non-convex budget set and an efficient budget constraint (the upper envelope of contract-specific budget sets). We apply our model to data collected on specialist physicians working in the Province of Quebec (Canada). Our data set contains information on each physician's labour supply and their work effort (clinical services provided per hour worked). It also covers a period of policy reform under which physicians could choose between two compensation systems: the traditional fee-for-service, under which physicians receive a fee for each service provided, and mixed remuneration, under which physicians receive a per diem as well as a reduced fee-for-service. We estimate the model using a discrete choice approach. We use our estimates to simulate elasticities and the effects of ex ante reforms on physician contracts. Our results show that physician services and effort are much more sensitive to contractual changes than is their time spent at work. Our results also suggest that a mandatory reform, forcing all physicians to adopt the mixed remuneration system, would have had substantially larger effects on physician behaviour than those observed under the voluntary reform.labour supply, effort, contracts, practice patterns of physicians, discrete choice econometric models, mixed logit

Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment

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 copensation 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-samples conditions. The structural results suggest that the average productivity gain, outside of the experimental conditions, would be at least 21.7%. Des données expérimentales sont utilisées afin de mesurer le gain en productivité réalisé quand des travailleurs sont payés à la pièce plutôt qu'à taux fixe. L'expérience a été complétée dans une entreprise qui s'occupe de plantation d'arbres et fournit des observations quotidiennes sur la productivité individuelle de chaque travailleur sous les deux systèmes de compensation. Des méthodes statistiques sans restriction mesurent le gain en productivité à 20%. Étant donnée que les conditions de plantation affectent potentiellement la productivité, les méthodes structurelles sont utilisées afin de généraliser les résultats en dehors de l'expérience. Les résultats structurels suggèrent que le gain en productivité, en dehors des conditions expérimentales, sera au moins de 21.7%.Econometrics of Contracts, Incentives, Experiments, Économétrie des contrats, incitations, expériences

On the Elasticity of Effort for Piece Rates: Evidence from the British Columbia Tree-Planting Industry

If policy prescriptions for compensation systems are to be useful, then they must be based on the empirical analysis of incentive effects; i.e., the elasticity of worker effort with respect to changes in the compensation system. We measure the elasticity of worker effort with respect to changes in the piece rate using panel data collected from the payroll records of a British Columbia tree-planting firm. Our data contain information on daily worker productivity and the piece rate received over a five-month period. We highlight the endogeneity problems inherent in traditional empirical analyses of compensation systems. In particular, employing regression methods, which use the sample covariance between piece rates and daily productivity to identify the incentive effect, we consistently estimate the elasticity of effort with respect to changes in the piece rate to be negative. Using a structural model to control for the endogeneity of the piece rate, we estimate the elasticity to be approximately 2.2. Structural estimation also allows us to perform policy experiments and to compare firm profits under alternative compensation systems. Our results suggest that profits would increase by at least 17 percent were the firm to implement the optimal contract as predicted by principal-agent theory. Pour que les prévisions politiques à l'égard des systèmes de compensation soient utiles, il faut qu'elles soient basées sur des analyses empiriques des effets incitatifs, i.e. l'élasticité de l'effort du travailleur par rapport aux changements dans le système de compensation. Nous mesurons l'élasticité de l'effort du travailleur par rapport aux changements dans la rémunération à la pièce en utilisant des données longitudinales que nous avons colligées à partir des archives d'une compagnie qui s'occupe de plantation d'arbres en Colombie-Britannique. Nos données contiennent de l'information sur la productivité quotidienne des travailleurs ainsi que sur le taux de rémunération à la pièce pendant une période de 5 mois. Nous nous intéressons plus particulièrement aux problèmes d'endogénéité inhérents à l'analyse empirique traditionnelle des systèmes de compensation. En employant des méthodes de régression qui utilisent la covariance de l'échantillon entre la rémunération à la pièce et la productivité quotidienne pour identifier l'effet incitatif, nous estimons que l'élasticité de l'effort par rapport aux changements dans la rémunération à la pièce est négative. En employant un modèle structurel qui contrôle l'endogénéité de la rémunération à la pièce, nous estimons que l'élasticité est d'environ 2,2. L'application des méthodes structurelles nous permet également de faire des expériences politiques et de comparer les profits de l'entreprise sous différents systèmes de compensation. Nos résultats démontrent que les profits augmenteraient par au moins 17 % si l'entreprise adoptait le contrat optimal prédit par la théorie du principal-agent.Compensation Systems, Incentive Effect, Principal-Agent Models, Systèmes de compensation, effet incitatif, modèles principal-agent

Fixed Wages, Piece Rates, and Intertemporal Productivity: A Study of Tree Planters in British Columbia

We examine the effects of different sequences of work and rest on the daily productivity of workers who planted trees in the province of British Columbia, Canada, comparing the intertemporal productivity profiles of planters who were paid either fixed wages or piece rates. We find that planters who are paid piece rates produce more, on average, than those who are paid fixed wages, but that the productivity of piece-rate planters falls with the number of consecutive days worked; the fall in productivity is between three and five percent. Fixed-wage planters, on the other hand, showed no such decreases. Nous considérons les effets de différentes séquences de travail et de repos sur la productivité quotidienne des travailleurs qui s'occupent de plantation d'arbres en Colombie-Britannique. Nous faisons une comparaison des profils intertemporels de la productivité des planteurs qui sont payés à taux fixe avec celle des planteurs qui sont payés à la pièce. Nos résultats suggèrent que les planteurs qui sont payés à la pièce sont plus productifs que ceux qui sont payés un taux fixe. Pourtant, la productivité des planteurs qui sont payés à la pièce diminue avec le nombre de journées consécutives travaillées; la baisse de productivité est entre trois et cinq pour cent par jour. Les travailleurs qui sont payés un taux fixe ne démontrent aucune réduction de productivité.Compensation Systems, Productivity, Rest, Recuperation, Systèmes de compensation, productivité, repos, récupération