The unexpected consequence of public sector pay schemes

I wrote a few weeks ago about research showing that nationally regulated pay in the National Heath Service seemed to be lowering standards in high wage areas, such as London. Pay regulation kills

That research, and several other interesting papers, are summarised in a special edition of Research in Public Policy. Here is one highlight:

Hugh Gravelle and co-authors look at a recent attempt to introduce greater incentive pay into public sector wages, in this case for doctors since 2004.This new contract (called the ‘quality and outcomes framework’) offers incentives for doctors to hit treatment targets.

The authors explore first whether the new contract has led to higher pay and job satisfaction – both affirmative – and then its behavioural consequences, both intended and unintended. The intended impact on treatment outcomes is at best unclear, partly due to poor data on the situation before the reform was introduced.

But there is much clearer evidence of ‘gaming’ by doctors to maximise pay without increasing treatment. This mirrors other evidence of incentive payments often having unintended consequences when the contracts or targets are not perfectly aligned with objectives.

The full feature is here, and there is more here too.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
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