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Wage Levels and Method of Pay

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Author Info
Charles Brown

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Abstract

The traditional literature on method of pay distinguishes workers who are paid time rates from those who are paid piece rates. The theory predicts that the piece-rate workers will earn more, and empirically they do. A simple generalization is to divide time-rate workers into two groups: those whose wage depends on their supervisor's ratings and those whose wage does not. Theory predicts that the workers whose pay is linked to supervisor ratings will earn more than the other time-rate workers. Wage data for workers in over 3,000 manufacturing establishments show they do not, and several simple explanations fail to resolve this empirical puzzle.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 23 (1992)
Issue (Month): 3 (Autumn)
Pages: 366-375
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Handle: RePEc:rje:randje:v:23:y:1992:i:autumn:p:366-375

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring. [Downloadable!] (restricted)
  3. Richard B. Freeman, 1982. "Union wage practices and wage dispersion within establishments," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 36(1), pages 3-21, October.
    Other versions:
  4. Charles Brown, 1990. "Firms' choice of method of pay," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 165-182, February.
    Other versions:
  5. Garen, John E, 1985. "Worker Heterogeneity, Job Screening, and Firm Size," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 715-39, August. [Downloadable!] (restricted)
  6. Lundberg, Shelly J & Startz, Richard, 1983. "Private Discrimination and Social Intervention in Competitive Labor Markets," American Economic Review, American Economic Association, vol. 73(3), pages 340-47, June. [Downloadable!] (restricted)
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  7. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January. [Downloadable!] (restricted)
  8. Robert Gibbons & Kevin Murphy, 1989. "Relative Performance Evaluation for Chief Executive Officers," Working Papers 628, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  9. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-64, June. [Downloadable!] (restricted)
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  10. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April. [Downloadable!] (restricted)
  11. Dennis J. Aigner & Glen G. Cain, 1977. "Statistical theories of discrimination in labor markets," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 30(2), pages 175-187, January.
  12. Robert Gibbons & Kevin J. Murphy, 1990. "Relative performance evaluation for chief executive officers," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 30-51, February.
  13. Jeremy I. Bulow & Lawrence H. Summers, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Jonathan S. Leonard, 1990. "Executive pay and firm performance," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 13-29, February.
  15. Lazear, Edward P, 1986. "Salaries and Piece Rates," Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July. [Downloadable!] (restricted)
  16. John Pencavel, 1975. "Work Effort On-the-Job Screening, and Alternative Methods of Remuneration," Working Papers 443, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  17. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Daniel Parent, 2001. "The Effect of Pay-for-Performance Contracts on Wages," CIRANO Working Papers 2001s-05, CIRANO. [Downloadable!]
    Other versions:
  2. W.D. McCausland & K. Pouliakas & I. Theodossiou, 2005. "Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction," Labor and Demography 0505019, EconWPA. [Downloadable!]
    Other versions:
  3. Fred Henneberger & Alfonso Sousa-Poza & Alexandre Ziegler, 2007. "Performance Pay, Sorting, and Outsourcing," IZA Discussion Papers 3019, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Felipe Balmaceda, . "Compensation Methods in Competitive Labor Markert," ILADES-Georgetown University Working Papers inv118, Ilades-Georgetown University, School of Economics and Bussines. [Downloadable!]
  5. Daniel Parent, 2001. "Incentive Pay in the United States: Its Determinants and Its Effects," CIRANO Working Papers 2001s-04, CIRANO. [Downloadable!]
  6. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Tuomas Pekkarinen & Chris Riddell, 2006. "Performance Pay and Earnings: Evidence from Personnel Records," IZA Discussion Papers 2253, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Daniel Parent, 1997. "Methods of Pay and Earnings: A Longitudinal Analysis," CIRANO Working Papers 97s-14, CIRANO. [Downloadable!]
    Other versions:
  9. Felipe Balmaceda, 2002. "Compensation Methods in a Competitive Labor Market: the Role of Asymmetric Information," Documentos de Trabajo 139, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  10. repec:ese:iserwp: is not listed on IDEAS
  11. Alison L. Booth & Marco Francesconi, 2000. "Collectivism versus Individualism: Performance-related Pay and Union Coverage for Non-standard Workers in Britain," ILR working papers 061, Institute for Labour Research. [Downloadable!]
  12. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," NBER Working Papers 13653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Felipe Balmaceda, 2004. "Uncertainty, Pay for Performance and Adverse Selection in a Competitive Labor Market," Documentos de Trabajo 196, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  14. Bradley Ewing & Phanindra Wunnava, 2002. "The Trade-Off Between Supervision Cost and Performance-Based Pay: Does it Matter?," Middlebury College Working Paper Series 0232, Middlebury College, Department of Economics. [Downloadable!]
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