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Earnings, Productivity, and Performance-Related Pay

  • Booth, Alison L
  • Frank, Jeff

Jobs with performance-related pay (PRP) attract workers of higher ability and induce workers to provide greater effort. The authors construct an integrated model of effort and sorting that clarifies the distinction between observable and unobservable ability and the relationship between earnings and productivity. Predictions are tested against data from the British Household Panel Survey. The PRP raises wages by 9 percent for men and 6 percent for women. Theoretical calculations show that these estimated earnings differentials represent average productivity differentials net of monitoring costs at the marginal firm using PRP but not of the disutility of additional effort expended by workers. Copyright 1999 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/209927
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 17 (1999)
Issue (Month): 3 (July)
Pages: 447-63

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Handle: RePEc:ucp:jlabec:v:17:y:1999:i:3:p:447-63
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Claudia Goldin, 1985. "Monitoring Costs and Occupational Segregation by Sex: An Historical Analysis," NBER Working Papers 1560, National Bureau of Economic Research, Inc.
  2. Seiler, Eric, 1984. "Piece Rate vs. Time Rate: The Effect of Incentives on Earnings," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 363-76, August.
  3. Martin L. Weitzman, 1984. "The Simple Macroeconomics of Profit Sharing," Working papers 357, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Ewing, Bradley T., 1996. "Wages and performance-based pay: Evidence from the NLSY," Economics Letters, Elsevier, vol. 51(2), pages 241-246, May.
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