Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/225563
Authors: 
Bias, Daniel
Chen, Lin
Lochner, Benjamin
Schmid, Thomas
Year of Publication: 
2020
Series/Report no.: 
FAU Discussion Papers in Economics 07/2020
Abstract: 
We propose a novel measure for workers' financial incentives based on withinestablishment wage differences among similar workers from the same occupation. This measure captures all forms of incentive pay that lead to workeremployer-specific pay premiums, including explicit (e.g., bonuses) and implicit forms (e.g., tournaments). We estimate the measure using a linked workerestablishment-firm dataset that covers 31 million workers in Germany. For validation, we exploit survey-based information on performance pay and variation in monitoring costs due to occupational characteristics, establishment size, and task complexity and show that the measure behaves as theoretically predicted. Applying the measure yields evidence that workers' incentives positively correlate with firms' performance and innovativeness, which supports a positive relationship between incentives and effort.
Document Type: 
Working Paper

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