Incentives for Managers and Inequality Among Workers: Evidence from a Firm Level Experiment

By O. Bandiera, I. Barankay, Imran Rasul. Social Science Research Network, 2007

432 citations recorded by the source corpus.

We present evidence from a firm level experiment in which we engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower-tier workers. Theory suggests that managerial incentives affect both the mean and dispersion of workers' productivity through two channels. First, managers respond to incentives by targeting their efforts towards more able workers, implying that both the mean and the dispersion increase. Second, managers select out the least able workers, implying that the mean increases but the dispersion may decrease. In our field experiment we find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity. Analysis of individual level productivity data shows that managers target their effort towards high ability workers, and the least able workers are less likely to be selected into employment. These results highlight the interplay between the provision of managerial incentives and earnings inequality among lower-tier workers.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/66e4154653b20a273a2818f1b33002086932e14d

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Citations in the corpus

Profit with purpose? a theory of social enterprise with experimental evidence (2013, background): “17See, for example, Bandiera et al (2007) in the context of a field experiment.”
Management and Shocks to Worker Productivity (2019, neutral): “…(Costa, 1988; Holmstrom and Tirole, 1989; Lazear and Oyer, 2007), the empirical literature on evaluating the importance of task assignment within firms is relatively recent (Amodio and Martinez-Carrasco, 2018; Bandiera et al., 2007, 2009; Burgess et al., 2010; Friebel et al., 2017; Hjort, 2014).”
Who Gets the Job Referral? Evidence from a Social Networks Experiment (2012, background): “In a related context, Bandiera, Barankay, and Rasul (2007) show that without incentives, social connections decreased productivity due to on-thejob favoritism in a UK fruit farm.”
Bonus Culture: Competitive Pay, Screening, and Multitasking (2016, background): “Bannier, Feess, and Packham ð2013Þ study competition for risk-averse employees with different abilities between two vertically differentiated single-task firms.”
The Effects of Training on Own and Co-Worker Productivity: Evidence from a Field Experiment (2011, neutral): “While many field experiments have exploited changes in management behaviour induced by firm management (e.g., Shaw and Lazear 2008; Bandiera et al. 2007), we exploit the structure of the field experiment to estimate externalities.”
No Margin, no Mission? A Field Experiment on Incentives for public service delivery (2014, background): “This reconciles our finding that incentives do not affect the selection of agents into the job with earlier evidence from the private sector and from the laboratory that suggests substantial selection effects (Bandiera et al., 2007; Dohmen and Falk, 2011; Larkin and Leider, 2012; Lazear, 2000; Lazea”
Management of bureaucrats and public service delivery: evidence from the Nigerian civil service (2018, neutral): “On which topics have trainings been performed at your organization in the last five [5] years? Good relations with the public.”
Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation (2010, background): “…by the fact that o¢ cers collect private information about the rms they manage.13 The o¢ cer s assessment of the rm s repayment 11For evidence on explicit incentives see, for example, Jones and Kato (1995); Paarsch and Shearer (1999, 2000); Lazear (2000); and Bandiera, Barankay, and Rasul (2007).”
Dif-in-Dif Estimators of Multiplicative Treatment Effects (2014, neutral): “Indeed, Battistin et al. (2009) show that total expenditure tend to be log-normal.”