What Makes Employees Work Harder: Punishment or Pampering?

The type of job must make a big difference in whether 'feel-bad' works better than 'feel-good'.

A sense of purpose. Long-term financial stability.

This debate has been around for half a century. It's far, far more nuanced than this article suggests. Here's the original formulation of it:

http://en.wikipedia.org/wiki/Theory_X_and_Theory_Y

But it's not that Theory Y is necessarily "better". It depends on tons of different variables. And there have been plenty more theories after X and Y...

I didn't read the paper, and this seems like a no brainer, so it is probably addressed therein. However, the article didn't mention it, so I feel like I should bring it up.

Assuming that the graph displays average productivity, wouldn't the spike in productivity be partially accounted for by the fact that the employees that were driving down the average lost their job?

The problem with "feel bad" motivation strategies is that they only really work in the short term. Sure, putting tracking devices on employees increases productivity right then, but after a few months, once the employees have figured out how to game the system (or realize that the data from these devices isn't being scrutinized, because performing that kind of rigorous data analysis is expensive/time consuming), productivity will drop right back to where it was before.