Crowding out intrinsic motivation in the public sector.

Abstract

Employing intrinsically motivated individuals has been proposed as a means of improving public sector performance. In this article, we investigate whether intrinsic motivation affects the sorting of employees between the private and the public sectors, paying particular attention to whether extrinsic rewards crowd out intrinsic motivation. Using British longitudinal data, we find that individuals are attracted to the public sector by the intrinsic rather than the extrinsic rewards that the sector offers. We also find evidence supporting the intrinsic motivation crowding out hypothesis, in that, higher extrinsic rewards reduce the propensity of intrinsically motivated individuals to accept public sector employment. This is, however, only true for two segments of the UK public sector: the higher education sector and the National Health Service (NHS). Whilst our findings inform the literature on Public Service Motivation (PSM), they also pose the question whether lower extrinsic rewards could increase the average quality of job matches in the public sector, thus improving performance without the need for high-powered incentives.