Monday, September 10, 2007

Should we pay our civil servants less and just say 'thank you' instead?

I saw an advertisement recently for the UK's Inland Revenue looking to hire a 'Head of Shared Understanding'. This was a new one on me - but it seems that Britain's public sector are ahead of many private sector employers in looking at new disciplines such as behavioural economics to design more effective policies. And they need to hire the people with those - still rare - skills.

One of the delightful aspects of behavioural economics is how 'contrarian' it can be. Economist Bruno Frey presented a thought-provoking paper to a recent Australian government forum. He points out that sometimes monetary incentives 'crowd out' desired behaviour by replacing 'intrinsic motivations' (to do the right thing, to be well thought of etc) with a desire for financial rewards. The problem then is that if people don't think they are being properly rewarded they then cut back on the desired behaviour. Hence the 'crowding out'.

Frey suggests that there are important implications for the public sector - including employment and payment practices. It does make you wonder, as we enter the next round of 'benchmarking' payments for, er, productivity gains from public sector employees, whether we (and they) would be better off just regularly telling our public servants what a great job they are doing (on behalf of us taxpayers), rather than yet more double-digit pay rises?

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