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Saturday, August 23, 2008

"The Fruits of Their Labors"

Economists take theoretical results into the field:

The Fruits of Their Labors, by Tim Harford, Slate: For many business owners, getting the most out of staff is a perennial problem. In the case of fruit farmers, perhaps perennial is the wrong word: Workers show up for the summer harvest only...

Tough work for the fruit-pickers, the business is also a headache for the owner, who must offer a pay scheme that both satisfies minimum-wage laws and motivates workers... The owner of a large British fruit-farm business, "Farmer Smith," ... discovered that the connection between pay and performance was ... an area where economists were scratching around for solid evidence.

And so an unlikely alliance was formed between Farmer Smith and economists Oriana Bandiera, Iwan Barankay, and Imran Rasul. The economists would design and administer pay schemes, and in exchange..., Farmer Smith would let them treat his business as a gigantic laboratory...

The owner had been paying a piece rate ... but also needed to ensure that whether pickers spent the day on a bountiful field or a sparse one, their wages didn't fall below the legal hourly minimum. Farmer Smith tried to adjust the piece rate each day so that it was always adequate but never generous: The more the work force picked, the lower the piece rate. But his workers were outwitting him by keeping an eye on each other, making sure nobody picked too quickly, and thus collectively slowing down and cranking up the piece rate.

Bandiera and her colleagues proposed a different way of adjusting the piece rate: Managers would test-pick the field to see how difficult it was and set the rate accordingly, thus preventing the workers from engaging in a collective go-slow. ... The economists measured the result. ... The new pay scheme increased productivity ... by about 50 percent.

The next summer, the researchers turned their attention to incentives for low-level managers, who would also be temporary immigrant workers ... responsible for on-the-spot decisions such as which workers were assigned to which row. The researchers found that managers tended to do their friends favors by assigning them the easiest rows. This ... was unproductive since the most efficient assignment for fruit picking is for the best workers to get the best rows. The researchers responded by linking managers' pay to the daily harvest. The result was that managers started favoring the best workers rather than their own friends, and productivity rose by another 20 percent.

Small wonder that the economists were invited back for another summer. They proposed a "tournament" scheme in which workers were allowed to sort themselves into teams. Initially, friends tended to group themselves together, but as the economists began to publish league tables and then hand out prizes to the most productive teams, ... workers prioritized money over social ties ... to ally themselves with the most productive co-workers who would accept them. In practice, that meant that the fastest workers clustered together, and again, productivity soared—by yet another 20 percent. ...

Bandiera and her colleagues have now stopped the experiments, in the belief that there is nothing more to be gained... The owner does not seem to agree: He's hired a consultant to keep on hatching new performance pay schemes.

Do you view this as economists helping owners exploit labor by finding schemes that trick them into working harder? The welfare of workers as a group should be higher after the changes.

    Posted by on Saturday, August 23, 2008 at 02:43 PM in Economics | Permalink  TrackBack (0)  Comments (58)

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