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Performance Pay and Wage Inequality

Author

Listed:
  • Lemieux, Thomas

    (University of British Columbia, Vancouver)

  • MacLeod, W. Bentley

    (Princeton University)

  • Parent, Daniel

    (HEC Montreal)

Abstract

We document that an increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonuses, commissions, or piece-rates. We find that compensation in performance-pay jobs is more closely tied to both observed (by the econometrician) and unobserved productive characteristics of workers. Moreover, the growing incidence of performance-pay can explain 24 percent of the growth in the variance of male wages between the late 1970s and the early 1990s, and accounts for nearly all of the top-end growth in wage dispersion (above the 80th percentile).

Suggested Citation

  • Lemieux, Thomas & MacLeod, W. Bentley & Parent, Daniel, 2007. "Performance Pay and Wage Inequality," IZA Discussion Papers 2850, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2850
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    incentive pay; bonus pay; performance pay; compensation; wage inequality;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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