Employer Size and Wage Inequality: Rent-Sharing Role of Performance Pay

Sang-yoon Song
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Sang-yoon Song: The Bank of Korea

Korean Economic Review, 2020, vol. 36, 415-444

Abstract: This study analyzes employer contributions to size–wage effects via heterogeneous rent sharing behaviors and compensation for capital dependency. Mainly attributed to differences in performance pay between small and large employers, the increasing size–wage effect has substantially contributed to a growing wage inequality since 1994, even after factoring in observed and unobserved worker characteristics. Analysis of the sources of increasing size–wage effects in terms of firm-side factors reveal that more active rent-sharing behaviors and compensation for capital dependency of large employers that use performance pay translate into the increasing size–wage effect. These results show that, unlike in the United States, the labor market in Korea associates performance pay more with employer characteristics than with worker characteristics.

Keywords: Wage Inequality; Performance Pay; Employer Size; Industry; Labor Productivity; Capital-to-Labor Ratio; Rent-Sharing Behavior (search for similar items in EconPapers)
JEL-codes: E23 J21 J31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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