IZA DP No. 6483: Performance Related Pay and Firm Productivity: New Evidence from a Quasi-Natural Experiment in Italy
published as 'Performance-Related Pay and Firm Productivity: Evidence from a Reform in the Structure of Collective Bargaining' in: Industrial and Labor Relations Review, 2015, 68(3), 606-632
This paper investigates the causal effect of a switch from fixed wages to collective performance-related pay on firm productivity, exploiting an exogenous variation in the institutional environment regulating collective bargaining. We find that the introduction of collective performance related pay significantly increases productivity by around 3-5 per cent, but such effect varies greatly by firm size, industry and union density. We show that the design of the PRP scheme – in terms of number and type of parameters used – is also relevant for firm productivity.