Measurement of Productivity Improvements: An Empirical Analysis

In this paper, we test for productivity gains resulting from the introduction of a productivity-based incentive program in a large manufacturing plant of a Fortune 500 corporation. We develop a methodology based on a stochastic nonparametric frontier estimation technique to evaluate productivity in the postincentive plan period relative to the pre-incentive plan period. We also test for productivity gains using stochastic parametric frontier approaches. The results of both the nonparametric and parametric stochastic frontier analyses indicate that the incentive program has a positive effect on indirect labor, manufacturing services, and materials productivity and relatively little effect on direct labor productivity.