ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, October 16, 2010

Hourly wage v. piecework: Guess which employee is more productive?

A Workers paid on a piecework basis were 20 percent more productive than workers paid on an hourly wage -- and they produced the same level of quality -- according to a recent study of tree-cutting workers.  The paper, Incentive Effect of Piece-Rate Contracts: Evidence from Two Small Field Experiments, is by Lan Shi of the University of Washington's Department of Economics.  Here's the abstract:



We conducted two field experiments in a tree-thinning setting. In one experiment, we switched the pay of a randomly chosen half (the treatment group) from hourly wages to piece-rate pay. Workers in the control group were paid hourly wages throughout. In the second experiment, workers were switched from hourly to piece-rate pay all at once. The difference-in-difference and before-after estimates suggest that the productivity increase was on the order of 20-23 percent. Although the sample size is small, the estimates are statistically significant and robust. While the quality did not drop, the study highlights the measurement costs in setting up the right level of piece rates. We also discuss the strengths and weaknesses of using randomized control (and treatment) groups or not in conducting field experiments within firms.


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