"Incentives for Managers and Inequality Among Workers: Evidence from a Firm-level Experiment" QJE May 2007

A paper by Oriana Bandiera, Iwan Barankay, and Imran Rasul entitled 'Incentives for Managers and Inequality Among Workers: Evidence from a Firm-Level Experiment' has been published in the Quarterly Journal of Economics, Vol 122:2 (May 2007). The authors present evidence from a firm level experiment that engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower-tier workers. They find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity. Analysis of individual level productivity data shows that managers target their effort towards high ability workers, and the least able workers are less likely to be selected into employment. These results highlight the interplay between the provision of managerial incentives and earnings inequality among lower-tier workers.