Worker Payments And Incentives: A Classroom Experiment

Authors

  • Linda S Ghent

Abstract

This classroom experiment demonstrates the effects of time-based pay and output-based pay on worker behavior and productivity.  Students will discover that workers paid a piece rate per unit produced will have incentives to work harder, but will sacrifice quality for increased quantity of output.  In addition, workers will self-sort into jobs with different payment systems based on expected productivity and effort.  Last, while labor costs per unit at firms offering output-based pay are generally lower than those at other firms, students will understand some of the reasons why this method of payment may not be widely used across occupations and industries. The paper concludes with several suggestions for extending the experiment to expand its illustrative value in a variety of economics courses.

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Published

2010-12-01