What is it about?
To date, the literature on the performance-related pay (PRP) and health relationship has focused on self-reported data. This paper uses an experimental method to examine the effect of PRP on stress measured by salivary cortisol for those who self-selected into a PRP contract, focusing on whether participants who perceive themselves with higher ability self-select into PRP and exhibit different stress changes compared to those not in a PRP scheme. Results show that self-selected PRP participants demonstrate significantly higher cortisol levels than participants in the nonPRP group. This study suggests that, regardless of sorting, PRP leads to higher physiological stress.
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Why is it important?
This is the first study to use physiological measures of stress (cortisol) to show that even if people want to get paid by their performance, their stress level (both physiolgically and subjectively) increases. If this happens in a short experimental session, the repeated nature of the labour market could indicate that those in performance-based pay jobs are more likely to have worse health outcomes unless something is done to mitigate these negative effects on health.
Perspectives
A great interdisciplinary study combining both economics and health psychology to uncover the physiological effects of performance pay on health.
Professor Keith A Bender
University of Aberdeen
Read the Original
This page is a summary of: Performance-related pay and sorting into stress, Oxford Economic Papers, March 2025, Oxford University Press (OUP),
DOI: 10.1093/oep/gpaf008.
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