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Performance Pay and the White-Black Wage Gap

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  • Heywood, John S.
  • Parent, Daniel

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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File URL: http://www.clsrn.econ.ubc.ca/workingpapers/CLSRN%20Working%20Paper%20no.%2034%20-%20Parent%20and%20Heywood.pdf
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Bibliographic Info

Paper provided by Vancouver School of Economics in its series CLSSRN working papers with number clsrn_admin-2009-42.

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Length: 48 pages
Date of creation: 22 Jul 2009
Date of revision: 22 Jul 2009
Handle: RePEc:ubc:clssrn:clsrn_admin-2009-42

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Web page: http://www.clsrn.econ.ubc.ca/

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Keywords: Racial Wage Differentials; Compensation Practices;

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References

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Citations

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Cited by:
  1. 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.
  2. Nicole Fortin & Thomas Lemieux & Sergio Firpo, 2010. "Decomposition Methods in Economics," NBER Working Papers 16045, National Bureau of Economic Research, Inc.
  3. Méon, Pierre-Guillaume & Szafarz, Ariane, 2011. "The modern corporation as a safe haven for taste-based discrimination: An agency model of hiring decisions," Labour Economics, Elsevier, vol. 18(4), pages 487-497, August.
  4. Ghazala Azmat & Rosa Ferrer, 2012. "Gender Gaps in Performance: Evidence from Young Lawyers," CEP Discussion Papers dp1136, Centre for Economic Performance, LSE.
  5. 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.
  6. Merlino, Luca Paolo, 2012. "Discrimination, technology and unemployment," Labour Economics, Elsevier, vol. 19(4), pages 557-567.
  7. Maury Gittleman, & Brooks Pierce,, 2013. "Pay for Performance and Compensation Inequality: Evidence from the ECEC," Working Papers 465, U.S. Bureau of Labor Statistics.
  8. 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.
  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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