Selection and Incentive Effects of Financial and Career Incentives on Labor Productivity: Evidence from a Field Experiment in Malawi

This study analyzes how financial and career incentive schemes affect labor productivity differently through worker selection and incentive channels. It implements a novel two-stage randomized controlled trial in the context of the recruitment, training, and survey processes of enumerators in collaboration with a local NGO in Malawi. In the first stage, 536 study subjects randomly receive one of the following three options: a job offer with a financial incentive (a one-time work opportunity with a daily market wage), a job offer with career incentives (a recommendation letter specifying job performance and a potential job opportunity at the collaborating NGO), and no job offer. In the second stage, for those who agree to work, we provide the same financial incentive to a randomly selected half of the career incentive group and the same career incentives to a randomly selected half of the financial incentive group. This two-stage randomization allows us to obtain two sub-groups with both financial and career incentives during enumeration work, with different channels of attraction to the job. Moreover, we can isolate the causal effects of career and financial incentives on labor productivity. We find that those attracted by the career incentives have better non-cognitive skills, such as extroversion, but those attracted by the financial incentive have better cognitive skills. During training, those attracted by the financial incentive achieve better quiz scores and accuracy in a mock survey. On the contrary, those attracted by career incentives perform better during enumeration work in terms of survey accuracy and speed. A likely explanation is that stronger non-cognitive skills are more important for enumerator fieldwork, in which participants have to interact with strangers. In addition, we find that adding the financial incentive to the career incentive group improves survey accuracy and speed. Adding career incentives to the financial incentive group improves worker attitude, as measured by their supervisors. Our findings suggest the growing importance of non-cognitive skills in labor market outcomes. Career incentives to entry-level workers are effective for attracting those with better non-cognitive skills, which leads to higher performance. Moreover, adding financial incentives to those recruited by career incentives could significantly boost productivity.