This paper examines when and to what extent an individual's relative wage de pends on his/her productivity relative to others doing the same job. Starting wages were influenced by background characteristics and trai ning cost realizations but not by relative productivity. Wages one ye ar later were influenced by productivity but the effects were small. The wage elasticity was 0.2 at small establishments and 0.0 at establ ishments with over four hundred employees. The wage response to relat ive pro-ductivity and training costs was weaker in small labor market s, suggesting that wages do not fully respond to performance because of the firm specificity of job performance differentials. Copyright 1987 by University of Chicago Press.