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Firms' Choice of Method of Pay

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  • Charles Brown

Abstract

Three types of pay-setting methods are piece rates (pay mechanically linked to output), merit pay (pay based on less formal judgments by one's supervisor), and standard rates (pay based on one's job classification and perhaps seniority, but not directly on performance). Firms' choice among methods depends on balancing the gains from more precise links between performance and pay against the costs of either precise or judgmental measures of output. Using data from the BLS Industry Wage Study program, hypotheses suggested by this observation are tested and for the most part confirmed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3065.

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Date of creation: May 1990
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Publication status: published as Industrial and Labor Relations Review, Vol. 43, No. 3, Special Issue, pp. 165-182, (February 1990).
Handle: RePEc:nbr:nberwo:3065

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  1. Barron, John M & Loewenstein, Mark A, 1986. "On Imperfect Evaluation and Earning Differentials," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 24(4), pages 595-614, October.
  2. Dennis J. Aigner & Glen G. Cain, 1977. "Statistical theories of discrimination in labor markets," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, ILR Review, Cornell University, ILR School, vol. 30(2), pages 175-187, January.
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