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Employer Size and Wage Inequality: Rent-Sharing Role of Performance Pay

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  • Sang-yoon Song

    (The Bank of Korea)

Abstract

This study analyzes employer contributions to size–wage effects via heterogeneous rent sharing behaviors and compensation for capital dependency. Mainly attributed to differences in performance pay between small and large employers, the increasing size–wage effect has substantially contributed to a growing wage inequality since 1994, even after factoring in observed and unobserved worker characteristics. Analysis of the sources of increasing size–wage effects in terms of firm-side factors reveal that more active rent-sharing behaviors and compensation for capital dependency of large employers that use performance pay translate into the increasing size–wage effect. These results show that, unlike in the United States, the labor market in Korea associates performance pay more with employer characteristics than with worker characteristics.

Suggested Citation

  • Sang-yoon Song, 2020. "Employer Size and Wage Inequality: Rent-Sharing Role of Performance Pay," Korean Economic Review, Korean Economic Association, vol. 36, pages 415-444.
    • Handle: RePEc:kea:keappr:ker-20200701-36-2-05
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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