Worker Separation Under Performance Pay: Empirical Evidence from Finland

39 Pages Posted: 18 Oct 2017 Last revised: 3 Dec 2017

See all articles by Derek C. Jones

Derek C. Jones

Hamilton College - Economics Department

Panu Kalmi

University of Vaasa

Takao Kato

Colgate University - Economics Department; IZA Institute of Labor Economics

Mikko Mäkinen

Bank of Finland

Date Written: October 19, 2017

Abstract

This paper investigates the role of individual incentive (II) and group incentive (GI) pay as determinants of worker separation. We use a large linked employer-employee panel data set for full-time male manufacturing workers during 1997-2006 from Finland. We follow actual job spells and switches of individual employees and define separation as worker exit from his current employer. The key finding for white-collar workers is that group incentive pay is associated significantly with increased probability of separation and hence diminished employment stability, but in large firms only. For blue-collar workers our results consistently indicate that individual incentive pay is associated with a decreased probability of separation and hence enhanced employment stability, both in small and large firms. Our finding that group incentive pay increases the risk of separation for white-collar workers is more consistent with theoretical work such as Lazear (2000) and Fehr and Gaechter (2000), while uncovering that individual incentive pay decreases employment stability for blue-collar workers supports theoretical work such as Parent (1999) and Paarsch and Shearer (2000).

Keywords: performance pay, worker separation, job mobility, earnings inequality

JEL Classification: J33, M52, J31, J62, J63

Suggested Citation

Jones, Derek C. and Kalmi, Panu and Kato, Takao and Mäkinen, Mikko, Worker Separation Under Performance Pay: Empirical Evidence from Finland (October 19, 2017). Bank of Finland Research Discussion Paper No. 33/2017. Available at SSRN: https://ssrn.com/abstract=3055067

Derek C. Jones (Contact Author)

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4381 (Phone)
315-859-4477 (Fax)

Panu Kalmi

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa, FI-65101
Finland

Takao Kato

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States
315-228-7562 (Phone)
315-228-7033 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mikko Mäkinen

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
13
Abstract Views
220
PlumX Metrics