Advanced Search
MyIDEAS: Login to save this paper or follow this series

Pay for Performance and Compensation Inequality: Evidence from the ECEC

Contents:

Author Info

  • Maury Gittleman,

    ()
    (U.S. Bureau of Labor Statistics)

  • Brooks Pierce,

    ()
    (U.S. Bureau of Labor Statistics)

Abstract

It is well known that earnings inequality in the United States has been on the rise over the last three decades. Compensation inequality, while much less studied, has been moving upward as well. Motivated in part by an attempt to explain a widening of inequality in the upper part of the distribution, Lemieux, MacLeod and Parent (2009) investigated the relationship between the use of performance pay schemes and wage inequality using the Panel Study of Income Dynamics. Viewing such a contractual arrangement as a channel through which rising demand for skill is translated into increased inequality, they estimated that pay for performance accounts for about one-fifth of the growth in the variance of male wages between the late 1970s and the early 1990s, and for almost all of the increase in wage inequality in the top quintile during the same period. In this paper, we also assess the relationship between performance pay and inequality, making a number of different contributions to the literature. First, the dataset we use, the Bureau of Labor Statistics’ Employee Costs for Employee Compensation (ECEC), allows us to look at a much broader concept of pay than that used by LMP, which consists largely of hourly earnings inclusive of performance pay (bonuses, piece-rates and commissions). It is important to relate methods of pay to total compensation because any effects noted on wages may be offset or amplified when one moves to broader definitions of compensation. Second, there are numerous types of bonuses, not all of which fall under the rubric of pay for performance. While LMP are forced by the limitations in the PSID to treat all types of bonuses as being the same, in some of our analyses, we are able to distinguish among them. Third, while the LMP analysis ends in the mid-1990s, our investigation is of a more recent time period, 1994 to 2010. Finally, allowing greater precision in our estimates, our dataset is significantly larger than the PSID. Our results suggest that while the presence of performance pay jobs is associated with higher levels of inequality, such jobs have made only a modest contribution toward an increase in inequality in the period under study.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bls.gov/ore/pdf/ec130060.pdf
Download Restriction: no

Bibliographic Info

Paper provided by U.S. Bureau of Labor Statistics in its series Working Papers with number 465.

as in new window
Length: 38 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:bls:wpaper:ec130060

Contact details of provider:
Postal: 2 Massachusetts Avenue, N.E. Room 2860, Washington, D. C. 20212
Phone: (202) 606-5900
Fax: (202) 606-7890
Email:
Web page: http://www.bls.gov
More information through EDIRC

Related research

Keywords: pay for performance; compensation inequality;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Jon Bakija & Adam Cole & Bradley Heim, 2008. "Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data," Department of Economics Working Papers 2010-22, Department of Economics, Williams College, revised Jan 2012.
  2. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  3. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July.
  4. John S. Heywood & Daniel Parent, 2012. "Performance Pay and the White-Black Wage Gap," Journal of Labor Economics, University of Chicago Press, vol. 30(2), pages 249 - 290.
  5. Katrin Sommerfeld, 2012. "Higher and Higher?: Performance Pay and Wage Inequality in Germany," SOEPpapers on Multidisciplinary Panel Data Research 476, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Charles Brown, 1990. "Wage Levels and Method of Pay," NBER Working Papers 3336, National Bureau of Economic Research, Inc.
  7. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
  8. Maury Gittleman & Brooks Pierce, 2012. "Compensation for State and Local Government Workers," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 217-42, Winter.
  9. Maury Gittleman & Brooks Pierce, 2011. "Inter-Industry Wage Differentials, Job Content and Unobserved Ability," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 64(2), pages 356-374, January.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bls:wpaper:ec130060. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gregory Kurtzon).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.