20 are able to elicit the same effort as the non-mission task with high-powered (piece-rate) incentives.

Results are similar under the pay for performance system: comparing effort by workers who select into the mission sector under a high-powered pay system, pay for performance, with those who select into the piece-rate non-mission sector, no significant differences in effort emerge (p=0.70). Those who select into the pay for performance mission sector exert significantly more effort than those who select into the flat pay mission sector, however. Like pay for ability, pay for performance systems also succeed in attracting sufficiently able and motivated individuals into the mission sector that their performance rivals that of those who prefer the non-mission task. However, Weberian pay systems accomplish this even in the absence of high-powered incentives.

# **Which wage systems elicit effort at lowest cost?**

Pay for performance seems to have the most systematic effect on effort, increasing effort (significantly) in the short term (with incumbents) and in the long term (after selection). However, the wage cost of effort also varies widely across pay systems, and is highest under pay for performance. Under the flat pay system, all subjects that selected the mission sector earned the same pay (6,600 tokens). Under pay for ability, subjects that selected the mission sector earned one of three possible pay levels, 4,200 tokens (30% of subjects), 6,600 tokens (46%) and 8,100 tokens (24%).<sup>11</sup> Average pay under pay for ability was therefore 6,226 tokens and less than under flat pay (p<0.05), even though pay for ability elicited significantly greater effort. For pay-for-performance, we used the same pay thresholds as in pay-for-ability, but this time conditional on subjects achieving the specific output targets associated with the thresholds. For this pay scheme, average pay was 7,163 tokens, which was significantly higher than the flat pay scheme (p<0.01) and higher than the pay for ability pay scheme (p<0.01). While both the payfor-ability and pay-for-performance pay schemes elicited greater effort post-selection (relative to flat pay), average wage costs were significantly lower for pay-for-ability.

Using the effort and earnings data, we construct an output-earnings ratio, the effort exerted by the subject in the mission sector (multiplied by 100: the implied value of each slider) divided by the subject’s wage cost (earnings) in the post-selection task. If subject output is exactly equal to subject compensation, the ratio is 1.0. Figure 3 presents the output-earnings ratio for subjects choosing the mission sector in the three treatments. We first note, that in all three treatments, the ratio is significantly higher than 1 (p<0.01 for all three treatments): subjects generate greater output than their compensation.

More importantly, we find no significant differences in the ratio between the flat pay and pay-for-performance treatments (p=0.70). In both treatments, the value that subjects generate is between 116 and 118 percent of their compensation. The ratio is significantly higher for the 11 Subjects were locked in to the pay level based on the ability grading task.