Do monetary rewards bring happiness? Comparing the impacts of pay-for-performance in the public and private sectors

Abstract

Does money make people happy? Empirical studies have investigated how personal income influences happiness, but the relationship between pay-for-performance (PFP) and happiness remains unknown. To address this gap, we examine the impact of PFP on worker happiness. In particular, we compare the impact between the public and private sectors, because scholars argue that PFP in the public sector often fails to deliver its intended benefits. Using data from the 2002 and 2006 General Social Surveys (GSS), we find that PFP only enhances worker happiness in the private sector, not the public sector. We also find that PFP is negatively related to the perceived relatedness and perceived organizational effectiveness in the public sector.