Working Longer but Not Harder: The Effects of Incentivizing Inputs versus Outputs in a Heterogeneous Workforce

Abstract

To address the empirical phenomenon that organizations often reward time on the job as an end in itself, we design an experiment in which participants solve anagram puzzles, manipulating whether a compensation pool generated from the output of paired workers is allocated based on the individual inputs of relative time spent or on the individual outputs of puzzles solved. Relative to an output-based allocation, we find that an input based allocation leads participants to spend more time on the task. However, when paired participants have widely different abilities, an input-based allocation also leads to less effort intensity, defined as puzzles solved per unit of time spent. We attribute these findings to fairness considerations, an interpretation we corroborate in a second experiment with purely individual incentives that finds the same effort duration advantage of input-based pay but no offsetting disadvantage in effort intensity.

Keywords: Compensation, pay allocations, inputs and outputs, relative abilities, experimental economics.

JEL Classification: D91, J33, M40