Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus
Performance Pay and the "Time Squeeze"
() and Jaime Ortega
Abstract: Earlier studies of the impact of performance pay on
individuals’ behavior have primarily been concerned with the effects on
their earnings and productivity. The productivity increases associated with
the adoption of performance pay practices may, however, come at the expense
of quality of life at or outside work. In this paper we study the effect on
the employees’ out-of-work activities, testing whether performance pay
contracts lead to a “time squeeze” for non-work activities. In doing so, we
distinguish between two effects, a substitution effect and a discretion
effect. On the one hand, since the marginal payoff to work is higher under
a performance pay contract, employees will work more and spend less time on
private activities (substitution effect). On the other hand, to the extent
that employees have some choice over their work hours, if employees are
more productive they can do the same job in less time and have more spare
time for private activities (discretion effect). We distinguish between
those services that the employee can buy in the market (e.g., cleaning,
cooking) and leisure activities (e.g., sports, cultural activities).
Keywords: Performance pay; Out-of-work activities; Time allocation; Work-family balance; (follow links to similar papers)
JEL-Codes: J22; J33; M52; (follow links to similar papers)
35 pages, January 1, 2007
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