Arbeitspapier

Worker separation under performance pay: Empirical evidence from Finland

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).

ISBN
978-952-323-193-1
Language
Englisch

Bibliographic citation
Series: Bank of Finland Research Discussion Papers ; No. 33/2017

Classification
Wirtschaft
Compensation Packages; Payment Methods
Personnel Economics: Compensation and Compensation Methods and Their Effects
Wage Level and Structure; Wage Differentials
Job, Occupational, and Intergenerational Mobility; Promotion
Labor Turnover; Vacancies; Layoffs

Event
Geistige Schöpfung
(who)
Jones, Derek C.
Kalmi, Panu
Kato, Takao
Mäkinen, Mikko
Event
Veröffentlichung
(who)
Bank of Finland
(where)
Helsinki
(when)
2017

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Jones, Derek C.
  • Kalmi, Panu
  • Kato, Takao
  • Mäkinen, Mikko
  • Bank of Finland

Time of origin

  • 2017

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