Using data from the National Longitudinal Survey of Youth 1979 (NLSY79), this paper analyzes the relationship between compensation scheme and earnings level. This paper aims to inform the reader that the type of compensation scheme implemented at a firm has an impact on a worker’s earnings and level of productivity. Specifically, this paper will present information that highlights the benefits of using piece rate pay over other types of compensation. Piece rate and time rate pay are distinct in nature and therefore offer different incentives to workers. Currently, time rate pay is the more common methodology of payment within firms. This is because piece rate pay cannot be used in all markets as it requires the measurement of tangible output. However, for the firms in which piece rate can be implemented, it should be, as piece rate pay provides increases to productivity, worker utility, and earnings level. Piece rate pay has the ability to incentivize workers and create optimization for both workers and the firm. The empirical analysis conducted in this paper fails to find consistent statistically significant values that show the earnings difference between piece rate and non-piece rate workers. However, the data is consistent with past literature and suggests that piece rate pay does positively impact the earnings level of workers.
Sherman, Gabe, "The Impact of Various Compensation Schemes on Worker Earnings: An Analysis of the Impacts of Piece Rate versus Time Rate" (2021). Senior Independent Study Theses. Paper 9549.
Piece Rate Pay
Bachelor of Arts
Senior Independent Study Thesis
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