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Performance Pay And Wage Inequality

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  • Thomas Lemieux

    ()

  • W. Bentley Macleod

    ()

  • Daniel Parent

    ()

Abstract

An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using a bonus, a commission, or a piece rate. In this paper, we look at the effect of the growing incidence of performance pay on wage inequality. The basic premise of the paper is that performance pay jobs have a more "competitive" pay structure that rewards productivity differences more than other jobs. Consistent with this view, we show that compensation in performance pay jobs is more closely tied to both measured (by the econometrician) and unmeasured productive characteristics of workers. We conclude that the growing incidence of performance pay accounts for 25 percent of the growth in male wage inequality between the late 1970s and the early 1990s.

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Bibliographic Info

Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2006-08.

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Length: 36 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:mcl:mclwop:2006-08

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  14. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
  15. Lemieux, Thomas, 1998. "Estimating the Effects of Unions on Wage Inequality in a Panel Data Model with Comparative Advantage and Nonrandom Selection," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 261-91, April.
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