How important is self-control at work?

Responsible researcher: Viviane Pires Ribeiro

Article title: SELF-CONTROL AT WORK

Article authors: Supreet Kaur, Michael Kremer and Sendhil Mullainathan

Location of intervention: India

Sample size: 102 workers

Sector: Job market

Type of Intervention: Effects of self-control among workers

Variable of main interest: Self-control at work

Assessment method: Other – Field research

Assessment Context

The theory of the firm emphasizes a tension between workers and companies. This is because employers provide security to employees and these, in turn, do not fully benefit from their own efforts, thus creating moral hazard. Workers with self-control issues don't work enough from the employer's perspective, directly harming the company's profits. As a result, both the company and the employee have a vested interest in overcoming these problems.

The workplace exists to organize the effort made by employees. The same characteristics that mitigate moral hazard—incentive contracts and job resources like fixed hours—can also mitigate self-control problems. That is, the employer has the means and motives to implicitly provide commitment provisions.

Intervention Details

To assess the empirical relevance and magnitude of temporal inconsistency, Kaur et al. (2015) study an Indian data entry company in Mysore. Using the company's infrastructure – office space, software and operational protocols – the authors designed a field experiment over 13 months, with a sample of 102 workers.

At the data entry company, employees add, verify and edit electronic data, working full time and being compensated based on the number of accurate fields entered each day. The analyzed workers used data entry software to enter information into digitized image fields. Following standard practice, workers were paid a piece rate of Rs. 0.03 for each field entered plus a small daily fee of Rs. 15, which constituted about 8 percent of his compensation.

Methodology Details

Kaur et al. (2015) built a simple model to derive empirically testable predictions distinguishing worker behavior over time. In firm models, employees are compensated by incentives when they face extra risk. Thus, workers who are aware of their self-control problem evaluate stronger incentives as a form of motivation for the future.

Employees were offered the option to choose between two types of incentive contracts on a daily basis. The first is a straight piece rate contract. The second is a dominated contract, which pays less than the other contract for low levels of production, but which pays the same amount for high levels of production. Although the contract selection is made daily, workers are paid weekly: on a given day of the week, they receive their cumulative earnings from the last seven days.

In addition to predicting demand for dominated contracts, the model suggests that payment timing affects effort. As payday approaches, the source of the self-control problem diminishes: the rewards of work and the cost of work are closer temporally. As a result, production should increase. The model also suggests an important role for heterogeneity. That is, workers with greater self-control problems show greater payday effects and greater desire for dominated contracts.

Results

The results found by Kaur et al. (2015) suggest the quantitative importance of self-control at work. First, employees choose dominated contracts – which penalize low production but provide no greater reward for high production – on average 36% of the time. Using these contracts increases production by the same amount as an 18% increase in the piece rate wage.

Secondly, to test the impact of payday, workers were randomized into different payday groups, i.e. everyone was paid weekly but with the payday varying. Worker output was 8% higher on paydays than at the beginning of the weekly pay cycle. An effect of this magnitude corresponds to a 24% increase in the piece rate.

Third, the authors found substantial heterogeneity in the extent of contract and payday effects. Workers with above-average payday effects were 49% more likely to choose dominated contracts. Providing these workers with the option to choose a dominated contract increases their output by 9%.

Fourth, the option to choose dominated contracts has larger treatment effects when payday is distant. This is consistent with the fact that the self-control problem is smaller when it is close to payday and the dominated contract therefore has less scope to affect effort. Evidence of learning was also found. As workers gain experience, the correlation between payday effects and the choice of dominated contracts increases. After 2 months of experience, workers with high payday effects are 20 percentage points (73%) more likely to select dominated contracts than workers with low payday effects.

Public Policy Lessons

How important is self-control at work? The results found by Kaur et al. (2015) indicate strong evidence that self-control problems distort employee effort by economically significant magnitudes and these workers will require incentives that help them overcome these problems, such incentives can take a variety of forms. In the model developed by the authors, the dominated contract helped solve the self-control problem, through high-powered incentives around a discrete threshold. Many companies, for example, provide bonuses to employees who meet production targets or minimums. In some cases, employers remove a worker's ability to choose certain dimensions of effort, through rigid hours or in more extreme cases, assembly lines that make it impossible to slow a pace. Therefore, self-control problems among workers may lead companies to adopt incentives or impose work rules to allow monitoring of employee effort.

References : KAUR, Supreet; KREMER, Michael; MULLAINATHAN, Sendhil. Self-Control at Work. Journal of Political Economy , vol. 123, no. 6, p. 1227-1277, 2015.