Productivity and Economic Incentives

J. P. Davidson

• Publisher: Taylor & Francis
• Year: 2013
• Print ISBN: 9781032811062
• eBook ISBN: 9781136511493
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

As the controversies surrounding performance related pay have demonstrated, reward management is a key issue. Collecting the results of 'fieldwork' investigations in factories and retail outlets, this book measures output before and after a change in methods of remuneration. The link between productivity and stress is explored and conclusions drawn. An introductory chapter, by the eminent economist P. Sargant Florence summarises previously published productivity studies.

CHAPTER I
PAST AND PRESENT INCENTIVE STUDY

P. SARGANT FLORENCE

1 Past Research into Productivity

Enquiries into the productivity of labour took shape just before the First World War with the publication in America of Josephine Goldmark’s Fatigue and Efficiency and the appointment by the British Association for the Advancement of Science, meeting in Birmingham, 1913, of a Committee on Fatigue from the Economic Standpoint. During that war enquiry into the limits of productivity was urgently pushed forward by the Health of Munition Workers Committee, appointed by Lloyd George in 1915, and in America, as soon as she entered the war, by the U.S. Public Health Service. The results of these enquiries were published between 1916 and 1924 in two reports of the British Association, twenty-one memoranda of the Health of Munition Workers Committee, Bulletin 106 of the U.S. Public Health Service, Vernon’s Industrial Fatigue and Efficiency and Florence’s Economics of Fatigue and Unrest.

These enquiries during the First World War were mainly concerned with the effect of hours and physical conditions of work on particular kinds of jobs—hence the emphasis on fatigue, physical health and the limits to the capacity of labour. Florence, for instance, gave separate hour by hour work and accident curves for different types of work, and analysed all the jobs in a giant factory according to the part played by the human operator.

Between the wars interest switched from the economics and physiology to the psychology, sociology and anthropology of the industrial scene. The outstanding enquiry was that of Elton Mayo and his associates at Harvard, which brought out the importance to job-satisfaction of personal relations and above all of the behaviour of workers as a group. It is often maintained that Mayo’s enquiries contradicted the earlier results because the productivity of a small group of girls did not fall when their hours of work were put back to their original longer duration. This view ignores the fact that the girls’ hours were never more than forty-eight a week, and that the earlier enquiries dealt with hours of over forty-eight right up to seventy-two a week. It was in these longer working days that a rise in productivity, including quality of work and attendance, was associated with a fall in hours, and that the work and accident curve fell as the working day proceeded. In short, Mayo’s work added to our knowledge of the multiple factors involved, but did not cancel previous conclusions. In England the Industrial Health Research Board succeeded the Health of Munition Workers Committee, and its enquiries, contemporary with Mayo’s in America, have been unduly neglected. While making original contributions to group behaviour many of its numerous reports continued to stress the importance of monotony in certain types of work and of physical conditions as affecting output and accidents in the course of long working hours.

During the Second World War the Industrial Health Research Board ceased publishing research reports and little progress was made in the study of productivity either in England or America. But since 1945 there has been a certain reaction from the Mayo school of thought in two directions. More attention, especially in America, has been paid to the trade union affiliations of the worker, instead of only his affiliations to the firm or to an informal group. And both in England and America there are signs of renewed interest in the type of work as a factor both in productivity and job-satisfaction. Elton Mayo’s concentration upon relations within and between groups has led writers on social psychology like J. A. C. Brown to insist that ‘any definition of work which leaves out the fact that it is a social activity is no definition at all.’¹ This conception seems to exclude a woman’s housework, a small-holder’s activities and the many isolated workers found in factories, and certainly draws attention away from the different relations of an operator to his machine and materials in different jobs. These material, nonsocial, differences have been found often to produce different results from the same incentive, and will, in short, ‘condition’ incentive effects. Research conducted at Birmingham University has turned to the analysis of the work itself, and we shall shortly have occasion [§2.3, §4(2)] to refer to the element of ‘traction’ in various types of work and the ‘Blue Monday’ effect in unskilled and semi-skilled jobs compared with craftsmen and schoolteachers.

Neither in the First World War nor since, however, has prime attention been given to the actual effect on productivity of schemes of economic incentives.² This neglect was probably due partly to the difficulty of obtaining clear cases of an incentive applied in isolation, a difficulty to which we shall frequently have to refer; partly to the lack of interest of psychologists in this issue, as somewhat uninteresting. While economists devoted their energies to abstract reasoning rather than patient observation of facts and events, psychologists patiently observed, but were only slightly interested in tracing the economic motive or observing the material, economic, facts of output, costs, absence and labour turnover. The interest of most psychologists was largely wrapped up since Elton Mayo’s time in what workers felt and thought rather than what they did; in job-satisfac-tion and attitudes or in their social relations rather than in their productivity and mobility.

Writing in 1924 about time- and piece-rates, I forecast³ that ‘in the course of the next few years there will no doubt be a further instalment of books describing over and over again the subtleties of this or that system. May we urge prospective authors to devote less time to this recapitulation and more to collecting and disentangling actual results?’ Unfortunately the forecast proved true and the urging unavailing. The project of research this book incorporates is some attempt to make good the thirty-year gap in the collection and disentangling of actual results on output, earnings and the costs of production of a change in wage-systems.

Occasionally an employer would report scientifically and in sufficient objective detail on the net effect of an incentive scheme he might have introduced. An excellent example is the report by Sam Mavor and Coulson⁴ on their ‘Rowan’ type premium bonus scheme showing how the productivity standards or norms on which payment of bonus was based had become completely out of date and the rate fixed ‘loose.’ But to the neglect of economic incentives by official or academic research only two large exceptions can be made.

In their interim report issued in 1917 the British Health of Munition Workers Committee published a section entitled ‘Incentives to Work with Special Reference to Wages.’ Here a set of records of one machine operation collected by Florence shows rises of 24 and 28 per cent on the day-shift, 40 and 48 per cent on the night-shift, immediately after changing from a time- to piece-wage. And a circumstantially established conclusion was that the degressive type of piece-wage— the premium bonus, under which the rate per piece falls as the total of pieces increases—is associated with restriction of output. Subsequent investigations published by the United States Public Health Service showed the same association in America.⁵

Four circumstances were found establishing the fact of restriction.⁶

(1) The repetition of the same output figures for different persons, though these persons should vary in their capacity; (2) the repetition of the same output figure day after day, though, with changes in physical conditions, the output on different days should vary; (3) the ability of the same workers to produce at a higher rate of output, shown after machine breakdowns, so as to make up the uniformly repeated daily output; (4) the candid statement of workers that there is a limit agreed upon, often with a name attached to it such as the ‘stint’ or ‘doggie.’

The links connecting degressive piece-rates with restriction of output were in the course of these enquiries found psychologically clear enough and did not necessarily involve trade union ‘defensive tactics.’

‘If wage-eamers understand the formula of degression of wages they may quite reasonably decide that after a certain output the diminishing return is not worth the effort. If wage-earners don’t understand the often complicated formula, they tend to ask the foreman what precise output will satisfy the management, and leave it at that. Thus a social tradition of stereotyped output grows up, or if already there is reinforced.⁷

The second official series of enquiries into the effect of incentives upon productivity were undertaken by the Industrial Health Research Board. They were controlled experiments rather than actual observation of factory behaviour. Mace, in the Research Board’s Report No. 72, showed the importance of a graded series of output or performance standards for earning rewards while operators were learning. The most effective standard was found to be one the operator could really have the chance of the satisfaction of achieving. Wyatt, Frost and Stock, in the Research Board’s Report No. 69, put a group of girls on repetitive hand operations paying first, for nine weeks, a fixed weekly wage, then for fifteen weeks a competitive bonus, and then for twelve weeks a straight piece-wage. The piece-rate system was the most productive of the three systems of payment, reduced disturbances and talking, and was best liked, but gave rise to three times the complaints and the quarrelling among the group.

The series of original investigations into incentive effects reported in this present book were made under normal working conditions, not controlled by the investigators. Here a wide gap in industrial research has certainly developed. We hope at least partially to fill this gap by a patient observation and measured recording of productivity and of the workers’ reactions as affected by the introduction of incentives.

In a field where emotion and dogma is inclined to befog observation and measurement it is important, however, first to define and relate the conceptions to be used in some sort of framework.

2. Conceptual Framework

2.1 Productivity is, for the purpose of this book, taken to mean the productivity of labour⁸ measured directly by quantity, quality and economy of output per worker or small group of workers, or measured indirectly and conversely by rates of absenteeism, turnover, accidents, etc., among large groups of workers. Productivity may be considered more widely to include workers’ adjustment to productive changes in methods or organization, and mobility that ensures that labour is attracted and moves to occupations and industries most productive in national value. To be precise, such incentives to mobility should be distinguished as ‘attractives.’

2.2 There are many ways of increasing productivity beside incentives; and many incentives beside economic incentives. Broadly speaking, labour productivity has been in the past and can be increased by (a) increasing labour’s capacity to work (or move), (b) compulsion, or (c) increasing labour’s willingness to work (or move).

2.3 Incentive refers to an increased willingness, not capacity. As implied by its derivation of setting the tune for a song, compulsion is not involved. Capacity and willingness may be deemed to shade off into one another like a spectrum⁹ with a middle shade of ‘dis-gruntlement’ where a given productivity can be made easier to achieve by reducing workers’ psychological resistance, boredom, etc. It is in this middle shade that Baldamus’s notion of traction (illustrated in §4) is important as raising the level of willingness of the worker.¹⁰ But Sir Frederic Bartlett draws a clear distinction,¹¹ ‘Incentives, as they are now understood . . . operate only in the sphere of voluntary effort. If we wish fairly to estimate their probable results we have then to consider the distinction between what a person can do and what he will do. There is also irrefutable experimental evidence that between these two there is often a great gulf fixed.’

2.4 The increase in productivity does not start as in a vacuum from zero. Workers have their own original and spontaneous inborn and inbred capacities and degrees of willingness to work, which have been found to vary widely, probably approximating, as we shall record (§7), to a normal distribution, with a slight skew. Moreover, a group of workers at any place or time may have certain traditional or accustomed habits to which the individual is expected to conform.

Incentives thus do not create, but only aim to increase the natural momentum toward productivity. Stansfield¹² goes so far, indeed, as to formulate, on the Newtonian model, a ‘First Law of Socio-psychological Motion.’

‘Every person continues in his state of rest, or of uniform work in a straight line, unless he is compelled by impressed incentives to change his state.’

2.5 Ways of increasing labour’s (original) capacity include putting more efficient equipment at labour’s disposal, or a more efficient organization (possibly through a new division or deployment of labour), or making labour itself more capable by new working methods, by training or by higher wages which involve more efficient conditions of nutrition and living generally.

2.6 Schemes of incentives, however, plan to increase labour’s (original) willingness to work. These schemes may not succeed and a distinction must be made, wherever relevant, between incentive scheme and incentive effect. The effect may be negative and the incentive scheme a deterrent to productivity or a cause of immobility, or of moving unproductively to a job or industry of less national value.

2.7 Incentive schemes may be called economic if they involve giving a worker an opportunity to earn something more in exchange for more productivity: either more money earnings with which the worker can attain higher standards of living; or, indirectly economic, give the worker promotion or economic security. Economic incentives to move productively include a wage-structure and wage-differentials now often based on job-evaluation.¹³ Incentives to productivity or mobility that are not economic but of great influence in industry include interest in the work itself, the need to satisfy one’s conscience or a ‘sense of order’¹⁴ and responsibility and, probably connected with this need, the desire for status, prestige and respect, among the group with whom one works and lives. As Mace suggests,¹⁵ it is in his susceptibility to the pressure of surrounding expectations that a man’s sense of responsibility effectively consists. To correspond with the economic ‘cash-nexus,’ these incentives can be nicknamed the hobby-nexus, the duty-nexus, or the fame-nexus. And the list, and...

Table of contents

• Cover
• Title page
• Copyright page
• Dedication page
• Preface
• Contents
• Tables
• Diagrams
• Chapter I Past and Present Incentive Study
• Chapter II Productivity and Earnings in manufacturing
• Chapter III Attitudes and Reactions of Factory Workers
• Chapter IV Incentives and Productivity in Laundries
• Chapter V Incentives and Shop Productivity in Co-operative Societies
• Chapter VI Additional Evidence And Extension of Incentives to Services
• Chapter VII Trade Union And Labour Reactions to the Application of Incentives and the Industrial Relations Background in Factory C
• Chapter VIII Summary
• Appendices
• Index