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Performance Pay And The White-Black Wage Gap

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  • Daniel Parent

    ()

  • John S. Heywood

    ()

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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Bibliographic Info

Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2009-07.

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Length: 45 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:mcl:mclwop:2009-07

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Citations

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Cited by:
  1. Colin P. Green & John S. Heywood & Nikolaos Theodoropoulos, 2012. "Performance Pay and Ethnic Wage Differences in Britain," University of Cyprus Working Papers in Economics 06-2012, University of Cyprus Department of Economics.
  2. Nicole Fortin & Thomas Lemieux & Sergio Firpo, 2010. "Decomposition Methods in Economics," NBER Working Papers 16045, National Bureau of Economic Research, Inc.
  3. K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.
  4. Pierre-Guillaume Méon & Ariane Szafarz, 2011. "The Modern Corporation as a Safe Haven for Taste-Based Discrimination: An Agency Model of Hiring Decisions," ULB Institutional Repository 2013/88635, ULB -- Universite Libre de Bruxelles.
  5. Richard Fabling & Arthur Grimes & David C. Maré, 2012. "Performance Pay Systems and the Gender Wage Gap," Working Papers 12_13, Motu Economic and Public Policy Research.
  6. Ghazala Azmat & Rosa Ferrer, 2012. "Gender Gaps in Performance: Evidence from Young Lawyers," CEP Discussion Papers dp1136, Centre for Economic Performance, LSE.
  7. Merlino, Luca Paolo, 2012. "Discrimination, technology and unemployment," Labour Economics, Elsevier, vol. 19(4), pages 557-567.
  8. Maury Gittleman, & Brooks Pierce,, 2013. "Pay for Performance and Compensation Inequality: Evidence from the ECEC," Working Papers 465, U.S. Bureau of Labor Statistics.
  9. Colin Green & John Heywood, 2012. "Don't Forget the Gravy! Are Bonuses and Time Rates Complements?," Working Papers 13424023, Lancaster University Management School, Economics Department.

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