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Wage Levels and Method of Pay

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  • Charles Brown

Abstract

The traditional research on method of pay and wages compares those paid piece rates with those paid by the hour, and finds (as predicted by the theory) that those paid piece rates earn more. In this paper, those paid by the hour are divided into those paid standard rates (wage does not vary with performance) and those paid by merit pay plans. An extension of the standard theory predicts that those paid piece rates would have the highest earnings, and those paid standard rates the lowest, with merit pay an "in between" status. The evidence, however, from the Industry Wage Surveys is that those under merit pay receive lower wages than those in the other two groups.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3336.

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Date of creation: Apr 1990
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Publication status: published as RAND Journal of Economics, Vol. 23, Autumn 1992, pp.366-375
Handle: RePEc:nbr:nberwo:3336

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  1. John M. Abowd, 1989. "Does Performance-Based Managerial Compensation Affect Subsequent Corporate Performance?," NBER Working Papers 3149, National Bureau of Economic Research, Inc.
  2. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(1), pages 27-56, January.
  3. 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, vol. 30(2), pages 175-187, January.
  4. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  5. Gibbons, R. & Murphy, K.J., 1989. "Relative Performance Evaluation For Chief Executive Officers," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 532, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Lundberg, Shelly J & Startz, Richard, 1983. "Private Discrimination and Social Intervention in Competitive Labor Markets," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 340-47, June.
  7. Jonathan S. Leonard, 1990. "Executive pay and firm performance," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 13-29, February.
  8. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, Elsevier, vol. 20(2), pages 231-259, April.
  9. Charles Brown, 1990. "Firms' Choice of Method of Pay," NBER Working Papers 3065, National Bureau of Economic Research, Inc.
  10. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
  11. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
  12. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(3), pages 376-414, July.
  13. Garen, John E, 1985. "Worker Heterogeneity, Job Screening, and Firm Size," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(4), pages 715-39, August.
  14. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 59(3), pages 405-31, July.
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