If policy prescriptions for compensation systems are to be useful, then they must be based on the empirical analysis of incentive effects; i.e., the elasticity of worker effort with respect to changes in the compensation system. We measure the elasticity of worker effort with respect to changes...

We estimate the gain in productivity that is realized by paying workers piece rates rather than fixed wages; i.e., theincentive effect. Our data come from the payroll records of a British Columbia tree-planting firm that paid its workers both piece rates and fixed wages. These data contain...