Incentives to Work or Incentives to Quit?

57 Pages Posted: 16 Oct 2014 Last revised: 28 Jun 2017

See all articles by Raicho Bojilov

Raicho Bojilov

Pontifical Catholic University of Chile - School of Business

Date Written: June 2017

Abstract

Employees often learn about their ability while working, and the resulting beliefs interact with pay incentives to shape employment outcomes. This paper investigates this issue within a model that incorporates learning about ability on the job, dynamic selection, effort, and variation in pay incentives. The empirical analysis is based on unique data from a US call center. The results show that dynamic selection and experimentation with `risky' workers are major channels through which pay incentives affect employment outcomes, profits, and compensation. Under the implemented and the profit-maximizing contracts the gains from dynamic selection and experimentation outweigh the gains from experience accumulation and effort.

Keywords: Learning, Labor Turnover, Incentives, Pay Performance

JEL Classification: J33, J63, D82, D83, M51, M52

Suggested Citation

Bojilov, Raicho, Incentives to Work or Incentives to Quit? (June 2017). Available at SSRN: https://ssrn.com/abstract=2510708 or http://dx.doi.org/10.2139/ssrn.2510708

Raicho Bojilov (Contact Author)

Pontifical Catholic University of Chile - School of Business ( email )

Vicuna Mackenna 4860
Santiago
Chile

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