THE RELATIONSHIP BETWEEN SUPERVISION AND PAY: EVIDENCE FROM THE BRITISH NEW EARNINGS SURVEY†
| DOI | http://doi.org/10.1111/j.1468-0084.1995.mp57003003.x |
| Date | 01 August 1995 |
| Author | Giorgio Brunello |
| Published date | 01 August 1995 |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 57,3(1995)
0305-9049 $3.00
THE RELATIONSHIP BETWEEN SUPERVISION
AND PAY: EVIDENCE FROM TElE BRITISH NEW
EARNINGS SURVEYt
Giorgio Brunello
I. INTRODUCTION
A prediction of the shirking version of efficiency wage theory is that, holding
workers' effort constant, higher intensity of supervision is combined with
lower wages. This trade-off between pay and supervision is really a trade-off
between self-monitoring and external monitoring. The same level of effort
can be obtained by a firm either by paying a high premium over the
reservation wage or by increasing monitoring by supervisors. In the first case,
the relative cost of shirking increases. In the second case, the probability of
being caught shirking increases.
Empirical investigation of this trade-off has produced, so far, mixed
results. Leonard (1987), for instance, examined pay and supervision to staff
ratios in a sample of US firms in the high-technology sector and found a
positive, but statistically insignificant, relationship between pay and
monitoring intensity. Groshen and Krueger (1990), on the other hand, found
that wages of staff nurses in US hospitals were negatively related to the
supervisor to staff ratio and unrelated in other three occupations. More
recently, Kruse (1992) uses the US Survey of Job Characteristics to investi-
gate the same question and finds evidence of a negative relationship between
pay and the number of times a worker has been checked by a supervisor.'
These studies differ in the data-sets, in the econometric methodology and
in the definition of the critical variables. Leonard uses base hourly pay, net of
shift differentials but gross of (expected) incentive pay. Groshen and Krueger,
on the other hand, use straight-time hourly wages, net of overtime and shift
pay. Finally, Kruse uses hourly pay, gross of overtime, tips and incentive pay.
Compared to Leonard, who fits the relationship by ordinary least squares,
Groshen and Krueger use instrumental variables to take into account that the
t I wish to thank Stephen Nickell and an anonymous referee for comments and suggestions and
Guglielmo Weber for a very instructive discussion. The financial support of CNR (Consiguo
Nazionale delle Ricerche) is gratefully acknowledged. Errors are mine.
'Kruse (1992) provides also a good and updated survey of the empirical literature on the
argument. 309
Blackwell Publishers Ltd. 1995. Published by Blackwell Publishers, 108 Cowley Road, Oxford 0X4 uF,
UK & 238 Main Street, Cambridge, MA 02142, USA.
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