The effect of wages on workers performance

Happy workers, salary day

The effect of wages on worker performance is determined by a natural experience in which some workers in a particular profession (football referees) with short-term contracts convert to paid contracts. The job performance of contract workers improved compared to those who did not receive pay contracts. This conclusion is strong for the introduction of fixed effects for workers, indicating that the effects are not driven by better workers but rather workers who get contracts in which the value of wages is clearly stated.

The efficiency of workers is also greatly affected by the rate of salaries. Additional effort by workers may improve performance due to occupational problems, increase profits associated with occupational contracts (wage efficiency effects), or on-the-job training associated with paid contracts that improve the quality of workers.


While psychologists point out the intrinsic value of work to humans and identify the beneficial effects of work on human health, the model of rational economic behavior that supports the economics of work equates effort with no use. In other words, strong economies that seek progress are essentially built on building wage incentives. Therefore, economists assume that employees are more motivated to work with financial rewards. Moreover, if these efforts are directly rewarded through performance-related compensation, it can motivate them to expend more energy on the task.


Although performance-related wage contracts are becoming more and more common, most workers receive an annual salary. If a portion of their income is performance related, it is usually a small percentage of the total compensation.

One reason why contracts based on the notion of pay-for-performance are so common is that workers are risk-averse and may be reluctant to share underperformance risks with employers. Paid work reduces wage volatility, giving workers some certainty about future earnings, provided they meet the necessary performance thresholds to keep their jobs and the employer to stay in business.

If workers are heterogeneous, they can choose between contract types based on risk appetite and ability. Employers who wish to share risk with workers may want to pay a wage premium for performance-related contracts. More capable employees may seek performance-related contracts in the hope that doing so will provide them with higher incomes than standard contracts.

If you are an HR manager or a business owner, you will understand.
Employment contracts have several types, including fixed-wage contracts, proportionate wage contracts, and mixed wage contracts. The appropriate pattern for your company varies according to the quality of your services and products, but in all cases, the money-based incentive is the most important in all cases, whether the stimulation is through pre-agreed wage contracts or periodic rewards with fixed or different values.