Time is (Not) Money - Incentive Effects of Granting Leisure Time

I study how a gift of more leisure time affects employees’ performance in a real-effort laboratory experiment. Results show that a monetary gift of a 75% wage increase does not alter employee’s performance, compared to a baseline of no gift. A comparable gift of more leisure time, however, significantly increases employee performance by 25% during the employees’ shared working time. The mechanism for this is a significant reduction in on-the-job leisure (Internet) consumption by 45%. An online survey experiment among human resource managers provides some external validity. Managers anticipate the mechanism of on-the-job leisure reduction and point to possible further advantages of leisure time gifts over monetary gifts. This study contributes to the design of incentive schemes in organizations and shows the influence of on-the-job leisure as distortionary behavior on the intensive margin of labor supply.