Within-Firm Pay Inequality and Productivity

Melanie Wallskog, Nicholas Bloom, Scott Ohlmacher and Cristina Tello-Trillo

No 32240, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Combining confidential Census worker and firm data, we find three key results. First, employees at more productive firms earn higher pay at all earnings levels. Second, this pay-productivity relationship strengthens with seniority, doubling from an elasticity of 0.07 for pay on productivity for the median-paid employee to 0.15 for the top-paid employee. Consequently, more productive firms have higher within-firm inequality. Our data suggests this is driven by their greater adoption of aggressive performance-pay bonus and management schemes. Finally, the magnitude of this pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980.

JEL-codes: J0 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-bec, nep-eff, nep-hrm and nep-lab
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