EconPapers    
Economics at your fingertips  
 

Performance Pay and Wage Inequality

Thomas Lemieux (), W. Bentley Macleod and Daniel Parent ()

The Quarterly Journal of Economics, 2009, vol. 124, issue 1, 1-49

Abstract: An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonus pay, commissions, or piece-rate contracts. Using data from the Panel Study of Income Dynamics, we show that compensation in performance-pay jobs is more closely tied to both observed and unobserved productive characteristics of workers than compensation in non-performance-pay jobs. We also find that the return to these productive characteristics increased faster over time in performance-pay than in non-performance-pay jobs. We show that this finding is consistent with the view that underlying changes in returns to skill due, for instance, to technological change induce more firms to offer performance-pay contracts and result in more wage inequality among workers who are paid for performance. Thus, performance pay provides a channel through which underlying changes in returns to skill get translated into higher wage inequality. We conclude that this channel accounts for 21% of the growth in the variance of male wages between the late 1970s and the early 1990s and for most of the increase in wage inequality above the eightieth percentile over the same period.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (168) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1162/qjec.2009.124.1.1 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Performance Pay and Wage Inequality (2007) Downloads
Working Paper: Performance Pay and Wage Inequality (2007) Downloads
Working Paper: PERFORMANCE PAY AND WAGE INEQUALITY (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:124:y:2009:i:1:p:1-49.

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Elhanan Helpman, Lawrence F. Katz and Andrei Schleifer

More articles in The Quarterly Journal of Economics from Oxford University Press
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2019-09-07
Handle: RePEc:oup:qjecon:v:124:y:2009:i:1:p:1-49.