Performance pay and changes in U.S. labor market dynamics

Francesco Nucci and Marianna Riggi ()

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2796-2813

Abstract: A shift in the design of labor compensation occurred at around the mid-1980s in the U.S. and deals with an increased role of performance pay in driving the cyclical movements of wages. Using a DSGE model we show that this structural change accounts at least qualitatively for many observed changes in the U.S. labor market dynamics. It generates the disappearance of the procyclical response of labor productivity to non-technology shocks and the reduction of the contractionary effects of technology shocks on hours. Moreover, it is conducive to a drop in the volatility of output, a parallel increase in the volatility of wages and to changes in unconditional correlations consistent with what documented in the U.S. between the pre- and post-1984 periods.

Keywords: Performance pay; Procyclical productivity; Wage rigidity (search for similar items in EconPapers)
JEL-codes: E24 E32 J22 J3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2796-2813

DOI: 10.1016/j.jedc.2013.07.006

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