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Methods of Pay and Earnings: A Longitudinal Analysis

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Daniel Parent ()

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Abstract

In this paper, I investigate the relationship between methods of pay, including piece rates and bonuses, and the level and variance of wages using longitudinal data from the NLSY (1988-1990). Results using OLS and fixed-effects show that piece rate workers earn a premium compared to other workers while the positive effect of bonuses measured with OLS disappears when I use fixed-effects. Also, it is shown that the effect of piece rates is negatively related to the level of tenure, which suggests that rates may be cut as workers accumulate seniority. Finally, using minimum distance procedures to estimate a covariance model of wages, I am able to show that most of the variance for piece rate workers can be attributed to unobserved worker productivity, which is not the case for workers having pay for performance schemes.

Cet article examine le lien entre les méthodes de rémunération, incluant les bonus et les métayages, et le niveau ainsi que la variance des revenus de travail. Les données utilisées proviennent du National Longitudinal Survey of Youth (1988-1990). Les résultats indiquent que les travailleurs payés à l'unité gagnent en moyenne davantage que les auters travailleurs, et ce résultat est robuste à l'estimation des premières différences. Par ailleurs, l'estimation d'un modèle simple représentant la structure de covariance des salaires montre que la majorité de la dispersion des salaires pour les travailleurs payés à l'unité est attribuable à la productivité non-observée de ces travailleurs.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 97s-14.

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Date of creation: 01 Apr 1997
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Handle: RePEc:cir:cirwor:97s-14

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Related research
Keywords: Methods of pay; wage level; wage dispersion; Méthodes de rémunération; niveau et dispersion des salaires;

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Find related papers by JEL classification:
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November. [Downloadable!] (restricted)
  2. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January. [Downloadable!] (restricted)
  3. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1007-47, November. [Downloadable!] (restricted)
  4. Ewing, Bradley T., 1996. "Wages and performance-based pay: Evidence from the NLSY," Economics Letters, Elsevier, vol. 51(2), pages 241-246, May. [Downloadable!] (restricted)
  5. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November. [Downloadable!] (restricted)
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  6. 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.
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  7. Paul Oyer, 1995. "The Effect of Sales Incentives on Business Seasonality," Working Papers 733, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  8. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June. [Downloadable!] (restricted)
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  9. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
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  10. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March. [Downloadable!] (restricted)
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  11. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November. [Downloadable!] (restricted)
  12. Robert Gibbons & Kevin J. Murphy, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April. [Downloadable!] (restricted)
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  14. Charles Brown, 1990. "Wage Levels and Method of Pay," NBER Working Papers 3336, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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