Incentives,pay, and performance: a study of Australian employees

The paper analyses the determinants of self-reported work effort using a 1988 survery of Australian employees. While controlling for the endogeneity of the firm's choice of incentives and pay, it is found that direct incentive schemes have predicted effects, and the efficiency wage hypothesis is supported: pay and work effort are positively correlated. Two efficiency wage models are tested: Akerlof's gift exchange model, and work discipline arguments regarding monitoring difficulties and threats of dismissal. The latter argument is broadly consistent with the data.