PERFORMANCE PAY AND WAGE INEQUALITY

Thomas Lemieux, W. Bentley Macleod and Daniel Parent ()

Departmental Working Papers from McGill University, Department of Economics

Abstract: An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using a bonus, a commission, or a piece rate. In this paper, we look at the effect of the growing incidence of performance pay on wage inequality. The basic premise of the paper is that performance pay jobs have a more "competitive" pay structure that rewards productivity differences more than other jobs. Consistent with this view, we show that compensation in performance pay jobs is more closely tied to both measured (by the econometrician) and unmeasured productive characteristics of workers. We conclude that the growing incidence of performance pay accounts for 25 percent of the growth in male wage inequality between the late 1970s and the early 1990s.

JEL-codes: D3 J31 J33 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-08
New Economics Papers: this item is included in nep-bec, nep-knm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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http://www.mcgill.ca/files/economics/performancepayand.pdf (application/pdf)

Related works:
Journal Article: Performance Pay and Wage Inequality (2009)
Working Paper: Performance Pay and Wage Inequality (2007)
Working Paper: Performance Pay and Wage Inequality (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mcl:mclwop:2006-08

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