The Information Content of Employee Awards |
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| Institution: | 1. Department of Economics, University of Florida, USA;2. Department of Economics, Robert F. Lanzillotti Public Policy Research Center and affiliate faculty, Education Policy Research Center, University of Florida, USA;1. Swedish Institute for Social Research, Stockholm University, IFAU, IFN and CESIfo, Stockholm SE-106 91, Sweden;2. Research Institute of Industrial Economics (IFN) and Kristianstad University, Sweden;1. Sao Paulo School of Economics-FGV and IZA, Sao Paulo, Brazil;2. Inter-American Development Bank (IDB), Washington DC, USA;1. Department of Management Control and Information Systems, Faculty of Economics and Business, University of Chile, Chile;2. Department of Economics, Faculty of Economics and Business, University of Chile, Chile;3. Department of Economics, University of California, Berkeley, USA |
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| Abstract: | Employers often provide awards to employees to induce greater effort. Although a merit award system may increase effort and productivity, it may also produce unintended consequences if it provides new information to the labor market that enables outside employers to differentiate workers more accurately by their effectiveness. In this paper, I present evidence on the signaling effects of merit awards received by school principals in Chicago using regression discontinuity design methods. I find that principals who just exceeded the threshold for a merit award are over twice as likely to exit their school the year after winning compared to principals who fell just short of the award threshold, consistent with the notion that the labor market views the award as a signal of principal effectiveness. Difference-in-differences estimates show that the award program incentives increased achievement, highlighting the importance of program modifications that reduce the loss of more effective school leaders. |
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