This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Performance Pay And Wage Inequality

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Thomas Lemieux ()
W. Bentley Macleod ()
Daniel Parent ()

Additional information is available for the following registered author(s):

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.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.mcgill.ca/files/economics/performancepayand.pdf
File Format: application/pdf
File Function:
Download Restriction: no

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

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 36 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:mcl:mclwop:2006-08

Contact details of provider:
Postal: 855 Sherbrooke St. W., Montr�al, Qu�bec, H3A 2T7
Phone: (514) 398-4850
Fax: (514) 398-4938
Web page: http://www.repec.mcgill.ca
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Shama Rangwala).

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
D3 - Microeconomics - - Distribution
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

This paper has been announced in the following NEP Reports:

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. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June. [Downloadable!]
  3. Kanemoto, Yoshitsugu & MacLeod, W Bentley, 1992. "The Ratchet Effect and the Market for Secondhand Workers," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 85-98, January. [Downloadable!] (restricted)
    Other versions:
  4. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December. [Downloadable!] (restricted)
    Other versions:
  5. Daniel Parent, 1997. "Methods of Pay and Earnings: A Longitudinal Analysis," CIRANO Working Papers 97s-14, CIRANO. [Downloadable!]
    Other versions:
  6. 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)
  7. 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)
  8. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2006. "The Polarization of the U.S. Labor Market," American Economic Review, American Economic Association, vol. 96(2), pages 189-194, May. [Downloadable!]
    Other versions:
  9. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August. [Downloadable!] (restricted)
  11. Gibbons, Robert, 1987. "Piece-Rate Incentive Schemes," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 413-29, October. [Downloadable!] (restricted)
  12. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2002. "Comparative Advantage, Learning, and Sectoral Wage Determination," NBER Working Papers 8889, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  14. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    Other versions:
  15. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July. [Downloadable!] (restricted)
  16. Freeman, Richard B, 1980. "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits, and Separations," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 643-73, June. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
  18. Charles Brown, 1990. "Firms' Choice of Method of Pay," NBER Working Papers 3065, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  19. W. Bentley MacLeod & Daniel Parent, 1998. "Job Characteristics and the Form of Compensation," CIRANO Working Papers 98s-08, CIRANO. [Downloadable!]
  20. 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. [Downloadable!] (restricted)
  21. Robert Gibbons, 1997. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Gibbons, R. & Katz, L., 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differences," Working papers 543, Massachusetts Institute of Technology (MIT), Department of Economics.
  23. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning And Statistical Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 313-350, February. [Downloadable!] (restricted)
    Other versions:
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. Thomas Lemieux, 2008. "The changing nature of wage inequality," Journal of Population Economics, Springer, vol. 21(1), pages 21-48, January. [Downloadable!] (restricted)
    Other versions:
  2. Monojit Chatterji & Karen Mumford & Peter N Smith, 2007. "The Public-Private Sector Wage Differential: Gender, Workplaces and Family Friendliness," Discussion Papers 202, University of Dundee, Economic Studies. [Downloadable!]
  3. Vicente Cuñat & Maria Guadalupe, 2009. "Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition," Economics Working Papers 1134, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  4. Stefania Albanesi & Claudia Olivetti, 2009. "Production, Market Production and the Gender Wage Gap: Incentives and Expectations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 80-107, January. [Downloadable!] (restricted)
    Other versions:
  5. John S Heywood & Colin Green, 2008. "Profit Sharing and the Quality of Relations with the Boss," Working Papers 005698, Lancaster University Management School, Economics Department. [Downloadable!]
  6. Jonathan Guryan & Kory Kroft & Matt Notowidigdo, 2007. "Peer Effects in the Workplace: Evidence from Random Groupings in Professional Golf Tournaments," NBER Working Papers 13422, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Hunnes, Arngrim & Kvaløy, Ola & Mohn, Klaus, 2009. "Performance appraisal and career opportunities: A case study," UiS Working Papers in Economics and Finance 2009/11, University of Stavanger. [Downloadable!]
  8. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2007. "The evolution of household income volatility," Finance and Economics Discussion Series 2007-61, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  9. Alan Manning & Farzad Saidi, 2008. "Understanding the Gender Pay Gap: Whats Competition Got to Do with It?," CEP Discussion Papers dp0898, Centre for Economic Performance, LSE. [Downloadable!]
  10. Ola Kvaloy & Trond Olsen, 2007. "The Rise of Individual Performance Pay," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  11. Erling Barth, Bernt Bratsberg, Torbjørn Hægeland and Oddbjørn Raaum, 2008. "Performance Pay and Within-Firm Wage Inequality," Discussion Papers 535, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  12. B. Burcin Yurtoglu & Christine Zulehner, 2007. "The gender wage gap in top corporate jobs is still there," Vienna Economics Papers 0701, University of Vienna, Department of Economics. [Downloadable!]
  13. Kristin Kleinjans, 2008. "Do Gender Differences in Preferences for Competition Matter for Occupational Expectations?," Economics Working Papers 2008-09, School of Economics and Management, University of Aarhus. [Downloadable!]
  14. Francesco Nucci & Marianna Riggi, . "The Great Moderation and Changes in the Structure of Labor Compensation," Working Papers 124, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  15. Florian Englmaier & Stephen Leider, 2008. "Contractual and Organizational Structure with Reciprocal Agents," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  16. Sabrina Teyssier, 2008. "Les Modes de Rémunération comme MécanismesSélectifs de la Main d’oeuvre : Fondements Théoriques et Estimations Empiriques," Post-Print halshs-00303703_v1, HAL. [Downloadable!]
  17. Sabrina Teyssier, 2008. "Les Modes de Rémunération comme Mécanismes Sélectifs de la Main d’oeuvre : Fondements Théoriques et Estimations Empiriques," Working Papers 0818, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
Statistics
Access and download statistics

Did you know? You can use IDEAS to provide links to papers and articles in your course syllabus.

This page was last updated on 2009-11-19.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.