On the Cyclicality of Real Wages and Employment: New Evidence and Stylized Facts from Performance Pay and Fixed Wage Jobs

Options, the Value of Capital and Investment

Christos Makridis and Maury Gittleman ()

The Journal of Law, Economics, and Organization, 2022, vol. 38, issue 3, 889-920

Abstract: Using the National Compensation Survey between 2004 and 2017, we document four stylized facts and quantify cyclical heterogeneity among performance pay (PP) and fixed wage (FW) jobs. First, there is substantial dispersion in the incidence of PP, even within the same occupation; hourly compensation growth in PP jobs has been nearly three-times as large as that in FW jobs; the share of PP is increasing in employer size; the provision of PP is largely a firm-level decision. Second, we find that hourly compensation growth among PP (FW) jobs increases (decreases) in response to state employment growth. Furthermore, FW jobs respond primarily by adjusting the extensive margin of employment. Our estimates are identified off of comparisons of similar jobs within the same establishment over time. These business cycle dynamics are consistent with models that feature heterogeneity in organizational practices, allowing firms to adjust to uncertainty over the business cycle under flexibility in compensation contracts. (JEL J21, J22, J31, E32, M55).

Keywords: business cycle; compensation; employment; incentives; pay for performance (search for similar items in EconPapers)
Date: 2022
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