Financial Incentives as Signals: Experimental Evidence from the Recruitment of Health Workers

Abstract:

I study the role of financial incentives as signals of job attributes when these are unknown to potential applicants. I create experimental variation in expected earnings and use it to estimate the effect of financial incentives on candidates' perception of a newly created health worker position in Uganda and, through this, on the size and composition of the applicant pool. I find that more lucrative positions are perceived as entailing a lower positive externality for the community, and discourage agents with strong prosocial preferences from applying. While higher financial incentives attract more applicants and increase the probability of filling a vacancy, they hamper retention and performance. This is because the signal they convey reduces the ability to recruit the most socially motivated agents, who are found to stay longer on the job and to perform better.