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Performance Pay and the White-Black Wage Gap

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Author Info
John S. Heywood
Daniel Parent

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Abstract

We show that the reported tendency for performance pay to be associated with greater wage inequality at the top of the earnings distribution applies only to white workers. This results in the white-black wage differential among those in performance pay jobs growing over the earnings distribution even as the same differential shrinks over the distribution for those not in performance pay jobs. We show this remains true even when examining suitable counterfactuals that hold observables constant between whites and blacks. We explore reasons behind our finding that performance pay is associated with greater racial earnings gaps at the top of the wage distribution focusing on the interactions between discrimination, unmeasured ability and selection.

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Publisher Info
Paper provided by CIRPEE in its series Cahiers de recherche with number 0916.

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Date of creation: 2009
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Handle: RePEc:lvl:lacicr:0916

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Related research
Keywords: Racial wage differentials; compensation practices;

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Find related papers by JEL classification:
J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities and Races; Non-labor Discrimination
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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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. Brown, James N & Light, Audrey, 1992. "Interpreting Panel Data on Job Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 219-57, July. [Downloadable!] (restricted)
  2. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June. [Downloadable!] (restricted)
  3. Charles Brown, 1984. "Black-White Earnings Ratios Since the Civil Rights Act of 1964: The Importance of Labor Market Dropouts," NBER Working Papers 0617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Bound, John & Freeman, Richard B, 1992. "What Went Wrong? The Erosion of Relative Earnings and Employment among Young Black Men in the 1980s," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 201-32, February. [Downloadable!] (restricted)
    Other versions:
  5. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December. [Downloadable!] (restricted)
  6. George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Robert Barsky & John Bound & Kerwin Charles & Joseph Lupton, 2001. "Accounting for the Black-White Wealth Gap: A Nonparametric Approach," NBER Working Papers 8466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-44, September. [Downloadable!] (restricted)
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  9. Sergio Firpo & Nicole M. Fortin & Thomas Lemieux, 2007. "Unconditional Quantile Regressions," NBER Technical Working Papers 0339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Harry J. Holzer & Keith R. Ihlanfeldt, 1998. "Customer Discrimination And Employment Outcomes For Minority Workers," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 835-867, August. [Downloadable!] (restricted)
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  11. Heywood, John S., 1989. "Wage discrimination by race and gender in the public and private sectors," Economics Letters, Elsevier, vol. 29(1), pages 99-102. [Downloadable!] (restricted)
  12. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-95, October. [Downloadable!] (restricted)
    Other versions:
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This page was last updated on 2009-11-19.

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