Performance Pay, Sorting and the Dimensions of Job Satisfaction

Abstract

This paper investigates the influence of performance related pay on several dimensions of job satisfaction. In cross-sectional estimates, performance related pay is associated with increased overall satisfaction, satisfaction with pay, satisfaction with job security and satisfaction with hours. It appears to be negatively associated with satisfaction with the work itself. Yet, after accounting for worker fixed-effects, the positive associations remain and the negative association vanishes. These results appear robust to a variety of alternative specifications and support the notion that performance pay allows increased opportunities for worker optimization and do not generally demotivate workers or crowd out intrinsic motivation.