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Performance pay in academia: effort, selection and assortative matching

Ytsma, Erina (2015) Performance pay in academia: effort, selection and assortative matching. PhD thesis, The London School of Economics and Political Science (LSE).

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Abstract

This thesis studies the effect of performance pay on effort, selection and matching assortativeness in academia, using the introduction of performance pay in German academia as a natural experiment and employing a newly constructed data set encompassing the affiliations and productivity of the universe of academics in the country. I estimate the pure effort effect in a difference-in-differences framework comparing the productivity of cohorts that started their first tenured position just before the reform, and consequently do not receive performance pay, with those starting their first tenured position after the reform, and therefore do receive performance pay. I find that the effort effect is economically large; amounting to a 35% increase in academic productivity relative to the pre-reform productivity in the control group. I estimate the selection effect by analysing the rate at which academics of different productivity levels switch to the performance pay scheme and by exploiting the fact that the old and new wage scheme compare differently for academics at different ages, which gives rise to selection incentives that are inversely related to age. I find that more productive academics are more likely to select into performance pay, and that this effect is stronger for younger academics. The empirical framework to study matching assortativeness is informed by a simple matching model in which I show that performance pay increases positive assortative matching if there are positive productivity spillovers, and that this increase is larger if complementarities are stronger. I test this hypothesis in a difference-in-difference framework using a measure of complementarity strength as a continuous treatment variable and find that assortative matching increases more in fields with stronger complementarities, thus providing empirical evidence that performance related pay increases positive assortative matching. This effect is large; amounting to a two- to threefold increase in positive assortative matching.

Item Type: Thesis (PhD)
Additional Information: © 2015 Erina Ytsma
Library of Congress subject classification: L Education > LB Theory and practice of education > LB2300 Higher Education
Sets: Departments > Economics
Supervisor: Bandiera, Oriana and Besley, Tim and Prat, Andrea
URI: http://etheses.lse.ac.uk/id/eprint/3240

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