Pay Matters: The Piece Rate and Health in the Developing World

Abstract

BackgroundPiece rate pay remains a common form of compensation in developing-world industries. While the piece rate may boost productivity, it has been shown to have unintended consequences for occupational safety and health, including increased accident and injury risk. ObjectivesThis paper explores the relationship between worker pay and physical and emotional health, and questions the modern day business case for piece rate pay in the developing world. MethodsThe relationship between piece rate and self-reported measures of physical and emotional health is estimated using a large survey of garment workers in 109 Vietnamese factories between 2010 and 2014. A random effects logit model controls for factory and year, predicting worker health as a function of pay type, demographics, and factory characteristics. FindingsWorkers paid by the piece report worse physical and emotional health than workers paid by the hour (OR = 1.38-1.81). Wage incentives provide the most consistently significant evidence of all demographic and factory-level variables, including the factory’s own performance on occupational safety and health compliance measures. ConclusionsThese results highlight the importance of how workers are paid to understanding the variability in worker health outcomes. More research is needed to better understand the business case supporting the continued use of piece rate pay in the developing world.