Non-Linear Incentives and Worker Productivity and Earnings: Evidence from a Quasi-Experiment

48 Pages Posted: 4 Feb 2019

See all articles by Richard B. Freeman

Richard B. Freeman

National Bureau of Economic Research (NBER); University of Edinburgh - School of Social and Political Studies; Harvard University; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Wei Huang

Harvard University - Department of Economics; NBER; IZA Institute of Labor Economics

Teng Li

Sun Yat-sen University

Date Written: January 2019

Abstract

Firms often use non-linear incentive systems to motivate workers to achieve specified goals, such as paying bonuses to reach targets in sales, production, or cost reduction. Using administrative data from a major Chinese insurance firm that raised its sales targets and rewards for insurance agents greatly in 2015, we find that increased incentives induced agents to increase sales of the increasingly incentivized life insurance products, bunched around the new targets, albeit in part with some low quality sales that led to canceled contracts, while reducing sales of products out-side the new incentive system. The greater non-linear incentives raised agent incomes and low-ered turnover and substantially increased firm revenues net of the increase in payments to agents. The stock market reacted to the new system with a jump in the firms’ share price relative to its main competitor by 15-20% in the days surrounding introduction of the new system.

Suggested Citation

Freeman, Richard B. and Huang, Wei and Li, Teng, Non-Linear Incentives and Worker Productivity and Earnings: Evidence from a Quasi-Experiment (January 2019). NBER Working Paper No. w25507, Available at SSRN: https://ssrn.com/abstract=3328374

Richard B. Freeman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-868-3900 (Phone)
617-868-2742 (Fax)

University of Edinburgh - School of Social and Political Studies ( email )

Adam Ferguson Building
George Square
Edinburgh EH8 9LL
United Kingdom

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States
617-868-3900 (Phone)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE

Wei Huang

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

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

Teng Li

Sun Yat-sen University ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
9
Abstract Views
136
PlumX Metrics