Economic Models of Employee Motivation

Good Essays
SEPTEMBER/OCTOBER 1997

Joseph A. Ritter is a research officer at the Federal Reserve Bank of St. Louis. Lowell J. Taylor is an associate professor at the Heinz School of Public Policy and Management, Carnegie Mellon University. Eran Segev and Joshua D. Feldman provided research assistance.

Economic Models of Employee Motivation
Joseph A. Ritter Lowell J. Taylor

use the terms “wage” and “compensation” interchangeably throughout the article) high enough to deter undesirable behavior by making a job too good to lose are said to pay efficiency wages. It is fairly easy to see whether a firm is using some sort of piece rate plan. There is quite a bit of controversy, however, about whether firms that do not use piece rates adopt efficiency-wage or performancebonding plans. We follow our overview with a discussion of the nature of the evidence supporting the different models.

T

o most people it is a common sense proposition that hiring workers is a trickier problem than buying ballpoint pens. It is often difficult to find the right worker to hire, and workers who have already been hired can quit, steal, be hung over, refuse to cooperate with other workers, or simply not work very hard. In some workplaces some of these problems are relatively easy to solve, either by direct supervision or by directly linking pay to production. In general, however, things like ability, effort, and honesty are difficult to verify and consequently present special problems for personnel managers and economic theorists. The ways firms solve the problems of selecting, motivating, and retaining employees are potentially interesting to a wide cross-section of economists because they can affect how labor markets function and, therefore, how the entire economy operates. This article presents an overview of economists’ main hypotheses about the compensation strategies businesses use to address these kinds of problems. Broadly speaking, these solutions fall into three categories (with



References: Akerlof, George A. “Labor Contracts as Partial Gift Exchange,” Quarterly Journal of Economics (November 1982), pp. 543-69. _______ and Lawrence F. Katz. “Workers’ Trust Funds and the Logic of Wage Profiles,” Quarterly Journal of Economics (August 1989), pp. 525-36. Annable, James. “Another Auctioneer is Missing,” Journal of Macroeconomics (Winter 1988), pp. 1-26. Baker, George, Robert Gibbons, and Kevin J. Murphy. “Subjective Performance Measures and Optimal Incentive Contracts,” Quarterly Journal of Economics (1994), pp. 1125-56. Bulow, Jeremy I., and Lawrence H. Summers. “A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination, and Keynesian Unemployment,” Journal of Labor Economics (October 1986), pp. 376-414. Cappelli, Peter, and Keith Chauvin. “An Interplant Test of the Efficiency Wage Hypothesis,” Quarterly Journal of Economics (August 1991), pp. 769-87. Carmichael, H. Lorne. “Self-Enforcing Contracts, Shirking, and Life Cycle Incentives,” Journal of Economic Perspectives (Fall 1989), pp. 65-83. Dickens, William T., Lawrence F. Katz, Kevin Lang, and Lawrence H. Summers. “Employee Crime and the Monitoring Puzzle,” Journal of Labor Economics (July 1989), pp. 331-47. Doeringer, P. B., and M. J. Piore. Internal Labor Markets and Manpower Analysis, Heath, 1991. Gibbons, Robert. “Incentives and Careers in Organizations,” National Bureau of Economic Research Working Paper 5705, August 1996. _______ and Lawrence F. Katz. “Does Unmeasured Ability Explain Inter-industry Wage Differentials?” Review of Economic Studies (July 1992), pp. 515-35. F E D E R A L R E S E R V E B A N K O F S T. L O U I S 20 SEPTEMBER/OCTOBER 1997 _______ and _______. “Seniority-Based Layoffs as an Incentive Device,” Federal Reserve Bank of St. Louis Working Paper 97-17A, November 1997. Shapiro, Carl, and Joseph Stiglitz. “Involuntary Unemployment as a Worker Discipline Device,” The American Economic Review (June 1984), pp. 433-44. Thaler, Richard H. “Anomalies: Inter-industry Wage Differentials,” Journal of Economic Perspectives (Spring 1989), pp. 181-93. Weiss, Andrew. “Job Queues and Layoffs in Labor Markets with Flexible Wages,” Journal of Political Economy (June 1980), pp. 526-38. _______. Efficiency Wages: Models of Unemployment, Layoffs, and Wage Dispersion, Princeton University Press, 1990. F E D E R A L R E S E R V E B A N K O F S T. L O U I S 21

You May Also Find These Documents Helpful

  • Better Essays

    aims to critically evaluate the article “Employee Motivation- A Powerful New Model” published by Harvard Business Review. This study was made by Nitin Nohria, Boris Groysberg, and Linda-Eling Lee and they based their research upon the four drives: acquire, bond, comprehend, and defend. The purpose of their studies is to examine a new model, looking at how each of the drives operates and prove for the importance of all these four drives in employee motivation. The authors indicated the organizational…

    • 1053 Words
    • 5 Pages
    Better Essays
  • Better Essays

    Motivation of Employee

    • 2468 Words
    • 10 Pages

    Motivation of Employee People join and work in organization to satisfy their needs. They are fascinated to organizations that have the funds of rewarding their wants. These wealth are called “incentives (compensation, benefits)” (M. Maccoby, 9) of rewards; organizations use them to initiate people to contribute their efforts on the way to achieve organizational goals. The continued existence of an organization depends on its capability to attract and stimulate people to accomplish these individual…

    • 2468 Words
    • 10 Pages
    Better Essays
  • Powerful Essays

    Employee Motivation

    • 4240 Words
    • 17 Pages

    Conference The Relationship between Reward Management System and Employee Performance with the Mediating Role of Motivation: A Quantitative Study on Global Banks Pınar Güngör Okan University, Istanbul, 34722 Turkey Abstract The primary goal of this study is to research the relationship between the reward management system applications and employee performance of bank employees on global banks in Istanbul. It also focuses on the role of motivation as an intervening factor. According to the literature review…

    • 4240 Words
    • 17 Pages
    Powerful Essays
  • Better Essays

    Employee Motivation

    • 2351 Words
    • 10 Pages

    Employee Motivation A question often asked by first-line supervisors and managers is “How do we motivate our employees?” Effectively motivating employees to achieve a desired outcome is one of the most important functions as a supervisor or manager. There is evidence to show organizations are facing challenges retaining employees due to limited opportunities for advancement and the current competitive labor market. It does not appear things will get any better in the future. The loss of employees…

    • 2351 Words
    • 10 Pages
    Better Essays
  • Best Essays

    Employee Motivation

    • 3002 Words
    • 13 Pages

    0.1 INTRODUCTION The concept of work motivation has become very crucial to individuals and organisational success, Hence the reason why several researchers, theorists and scholars have sought to understand and determine what actually motivates people so as to build a productive and effective workforce. Simon et al (2010). Human beings are seen to be the most valuable asset of any organisation because without people, machines cannot operate themselves; neither can operations nor processes fall…

    • 3002 Words
    • 13 Pages
    Best Essays
  • Powerful Essays

    Employee Motivation

    • 8213 Words
    • 33 Pages

    Motivation is the process of attempting to influence others to do their work through the possibilities of gain or reward. Employee work motivation and performance will be analyzed from the perspective of motivation theory as the central for the analysis. Motivation involves getting the members of the group to pull weight effectively, to give their loyalty to the group, to carry out properly the purpose of the organization. Employee motivation is one of the major issues…

    • 8213 Words
    • 33 Pages
    Powerful Essays
  • Powerful Essays

    Employee Motivation

    • 3707 Words
    • 22 Pages

    IMPACT: International Journal of Research in Business Management (IMPACT: IJRBM) ISSN(E): 2321-886X; ISSN(P): 2347-4572 Vol. 2, Issue 5, May 2014, 1-10 © Impact Journals LEADERSHIP STYLES AND EMPLOYEE MOTIVATION: AN EMPIRICAL INVESTIGATION IN A LEADING OIL COMPANY IN INDIA R. GOPAL1 & RIMA GHOSE CHOWDHURY2 1 Director and Head, Department of Business Management, Padmashree Dr D.Y.Patil University, New Mumbai, Maharashtra India 2 Head of HR, Researcher, India for Quinnox Consultancy Services, Department…

    • 3707 Words
    • 22 Pages
    Powerful Essays
  • Powerful Essays

    Employee Motivation

    • 4066 Words
    • 17 Pages

    ORGANIZATION & CULTU TION & CULTURE MANAGING TECHNOLOGY FINANCE & ACCOUNTING MARKETING STRATEGY & COMPETITION M Honing & ACCOUNTING MARKETING MARKETING ORGANIZATION & CULTURE MANAGING TECHNOLOGY FINANC FINANCEYour Competitive Edge Employee Motivation A Powerful New Model by Nitin Nohria, Boris Groysberg, and Linda-Eling Lee 78 Harvard Business Review G | GETTING PEOPLE TO DO THEIR BEST WORK, even in trying cir- cumstances, is one of managers’ most enduring and slippery challenges. Indeed…

    • 4066 Words
    • 17 Pages
    Powerful Essays
  • Powerful Essays

    Employee Motivation

    • 3343 Words
    • 14 Pages

    Contents BACKGROUND OF THE COMPANY 2 History of Genting Highlands 3 Content 4 Maslow’s hierarchy of needs 5 Physiological Needs 5 Safety needs 6 Esteem 8 Convenience 8 McClelland’s acquired needs theory 9 Pros of Employee Motivation 10 Self-Esteem 10 Health 10 Recognition 10 Safety 10 Cons of Motivating Staff 10 Will Not Last and Employees become greedy 10 Over competitive 11 Job description oriented 11 Over dependence 11 Recommendation 12 Remove Demotivators 12 Pinpoint each employee’s…

    • 3343 Words
    • 14 Pages
    Powerful Essays
  • Powerful Essays

    employee motivation

    • 7882 Words
    • 32 Pages

    Research The relative importance of different types of rewards for employee motivation and commitment in South Africa Authors: Aleeshah Nujjoo1 Ines Meyer1 Affiliations: 1 Organisational Psychology Section, School of Management Studies, University of Cape Town, South Africa Correspondence to: Ines Meyer Orientation: Employees’ perceptions of rewards are related to their affective commitment and intrinsic motivation, which have been associated with staff turnover. Research purpose:…

    • 7882 Words
    • 32 Pages
    Powerful Essays