Doctoral Dissertation Research in Economics: Dissecting Piece Rate: Evidence from a Natural Experiment in a Garment Factory

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Piece-rate wage system is a popular payment mechanism in the manufacturing sector, but some employers find it difficult to switch to this system for many reasons. While theoretical work argues that piece-rate wage motivates individual worker effort, it is unclear whether switching from a fixed-wage to piece-rate wage system increases overall worker productivity since piece rates affect labor productivity through multiple channels that may conflict with each other. This research project takes advantage of an on-going process of change from a fixed wage to a piece-rate wage system in one garment manufacturing plant to study the effects of piece-rate wage on productivity. The researchers will study how piece-rate wage payment system affects productivity through increased performance monitoring, motivation of individual efforts, as well as recruitment and retention of more productive workers. The innovative research design will allow the researchers to unbundle the separate effect of each productivity changing mechanism. The results of this research will guide US businesses on how to implement wage systems that reward productivity, hence increase economic growth and improve the well-being of citizens. This DDRIG research project will leverage the introduction of piece-rate wage system in a garment factory to study whether piece-rate wage system increases overall labor productivity relative to a fixed wage system and if so, the mechanisms through which these labor productivity changes occur. The factory will implement two interventions---performance-based wage scheme and a worker monitoring system. The implementation of these interventions is staggered, and this staggered roll-out allows the PIs to distinguish the mechanisms---increase monitoring, motivation of individual workers, or recruitment and retention of highly productive workers---through which performance-based wages affect labor productivity. Turnover and heterogeneous treatment of performance-based wages will allow the PIs to analyze sorting of workers into different performance groups. The results of this research will guide US businesses on how to implement wage systems that rewards productivity, hence increase economic growth and improve the well-being of citizens.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.