Incentives, mission and productivity

Abstract

High-power incentives increase productivity through two distinct channels: attracting high-skilled workers and incentivizing high effort. We study experimentally how work mission interacts with these two channels. We construct “private sector firms” offering low base and high piece rate wages and “public sector firms” offering high base and low piece rate wages. In different parts of the experiment workers are either exogenously allocated to a sector or endogenously choose a sector in each period. This design allows us to disentangle and measure independently the sorting and the incentivizing effects. The addition of public sector mission attracts higher ability workers to the public firms and leads to greater effort when working in the public firms—while having no effect on average productivity, work time or average ability in the private firms. Consequently, the total productivity gap is diminishes by 30 percent. These results highlight the importance of cultivating a sense of mission in organizations.