Publications

Abstract: While performance pay can benefit firms and workers by increasing productivity and wages, it has also been associated with a deterioration of worker health. The transmission mechanisms for this deterioration remain in doubt. We examine the hypothesis that increased stress is one transmission mechanism. Using unique survey data from the German Socio-Economic Panel, we find performance pay consistently and importantly associates with greater stress even controlling for a long list of economic, social and personality characteristics. The finding also holds in instrumental variable estimations accounting for the potential endogeneity of performance pay. Moreover, we show that risk tolerance and locus of control moderate the relationship between performance pay and stress. Among workers receiving performance pay, the risk tolerant and those believing they can control their environment suffer to a lesser degree from stress.

DOI: https://doi.org/10.1016/j.jebo.2022.07.003 

Abstract: Previous studies show that performance pay can benefit firms and workers by increasing productivity and wages. Yet, performance pay can also have unintended consequences for worker health. Using data from the German Socio-Economic Panel, we examine the hypothesis that alcohol use as “self-medication” is a natural response to the stress and uncertainty associated with performance pay. We find that the likelihood of consuming each of four types of alcohol (beer, wine, spirits, and mixed drinks) is higher for those receiving performance pay even controlling for a long list of economic, social, and personality characteristics and in sensible instrumental variable estimates. We also show that the number of types of alcohol consumed is larger for those receiving performance pay and that the intensity of consumption increases.

DOI: https://doi.org/10.1111/irel.12301