Incentives and effort in the public and private sector

Abstract

Abstract While public service motivation theory suggests that public sector employees have higher levels of intrinsic motivation, average pay levels in the public sector are not lower, so public sector employees also value financial incentives. We investigate the relationship of financial incentives with effort (measured with unpaid overtime) for public versus private sector employees using a UK sample. Bonuses are used much less in the public sector, but their relationship with effort is not different between sectors. Public sector employees exert more effort when base pay is higher and do so to a somewhat higher extent than private sector employees. However, public sector employees increase effort more when effort is an important promotion criterion and when perceived job security is higher. Thus, implicit incentives resulting from being in a secure job and developing in that job are more effective for public sector employees than for private sector employees.

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