Research by economists Susan Helper, Morris Kleiner, and Yingchun Wang found that the use of pay-forperformance, or piece-rate pay, has declined in manufacturing industries in recent decades. They conclude that this result is caused by firms adopting “‘modern manufacturing’ in which firms produce a greater variety of products to a more demanding quality and delivery standard.”
a. What characteristics determine whether a salary system or a piece-rate system is likely to be more profitable for a manufacturing firm?
b. Why would modern systems “in which firms produce a greater variety of products to a more demanding quality and delivery standard” than manufacturers used previously result in firms choosing to pay their workers salaries rather than use piece rates?