Question

1. In class we discussed several compensation schemes that employers may use to motivate workers.

a. “Pay for performance” schemes may take several forms. One is a piece rate scheme, in which there is an explicit mathematical formula that translates workers’ output into pay. (For example, a worker might be paid $5 per unit of out put he or she produces.) A second scheme awards workers a year-end bonus that depends on their annual performance review. Question: All else equal, which of those systems would be more attractive to someone who feared discrimination?

b. Women are more likely than men to hold jobs that pay workers a piece rate, but less likely to hold jobs that promise workers raises if they perform well. Why might that be? (While it is possible that this difference may be related to discrimination, try to think of a different answer.)

c. Why might it be more problematic to use a piece rate scheme to motivate a sales representative who sells computers than one who sells furniture?

d. Briefly explain how job- or industry-specific human capital (or occupational licensing, for that matter) can make employees more diligent in their jobs, even if employers do not pay efficiency wages designed to elicit greater honesty.

Answer 1

a.

Piece rate system is more attractive.

In this system the performance is very straight forward. Suppose employee-A produces 30 units and employee-B produces 40 units; the piece rate is $5; therefore, employee-A would get (30 × $5 =) $150, and employee-B would get (40 × $5 =) $200; since employee-B produces more he is getting more than employee-A.

This system doesn’t indulge discrimination; therefore, such fear is not there.

On the other hand, the system of reviewing employees’ performances for the eligibility of bonus might be discriminated; a particular employee may think that he has done better than the eligible employee but still he is not getting bonus; he may think that there is discrimination. Since the performance evaluation may turn into discrimination, this system is not attractive to all.