06.11.2021

How Do Firms Have More Productive Workers? The Role of Career and Wage Incentives?

What are the best incentives to recruit more productive (entry-level) workers? The difficulty in effective screening of job applicants is one of the key drivers of low labor productivity. Firms often consider financial incentives such as high salary or bonus as well as career incentives such as tenure and promotion.

We study how career and wage incentives affect labor productivity through a two-stage, randomized, controlled trial in the context of a recruitment drive for census enumerators in Malawi. We find that career incentives of an internship significantly improve labor productivity through the self-selection of workers. Our findings suggest that career incentives are effective in improving labor productivity mainly through the selection effect channel.  We also find that additional financial incentives can be an effective means to improve labor productivity for those recruited by career incentives.

Based on our findings, we argue that active adoption of career incentives in the workplace as a hiring strategy could be an effective means to increase labor productivity of an organization hiring entry-level workers.

 

KIM, Hyuncheol Bryant

Associate Professor
Economics