High-Powered Performance Pay and Crowding Out of Non-Monetary Motives

38 Pages Posted: 19 Nov 2018

See all articles by David Huffman

David Huffman

IZA Institute of Labor Economics; Swarthmore College

Michael L. Bognanno

Temple University - Department of Economics; IZA Institute of Labor Economics

Abstract

A previous literature cautions that paying workers for performance might crowd out non-monetary motives to work hard. Empirical evidence from the field, however, has been based on between-subjects designs that are best suited for detecting crowding out due to low-powered incentives. High-powered incentives in the workplace tend to increase output, but it is unknown whether this masks crowding out. This paper uses a within-subject experimental design and finds evidence that crowding out also extends to high-powered incentives, in a real work setting with paid workers. There is individual heterogeneity, however, with a minority of workers report crowding in of motivation. Thus, the impact of performance pay might depend on the mix of worker types.

Keywords: experiment, non-cognitive skills, incentives, intrinsic motivation

JEL Classification: D03, J22, J33

Suggested Citation

Huffman, David and Bognanno, Michael L., High-Powered Performance Pay and Crowding Out of Non-Monetary Motives. IZA Discussion Paper No. 11920, Available at SSRN: https://ssrn.com/abstract=3286180

David Huffman (Contact Author)

IZA Institute of Labor Economics ( email )

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

Swarthmore College

500 College Ave
Swarthmore, PA 19081
United States

Michael L. Bognanno

Temple University - Department of Economics ( email )

Philadelphia, PA 19122
United States

IZA Institute of Labor Economics

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

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