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Performance Pay and the White-Black Wage Gap

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  • John S. Heywood
  • Daniel Parent

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.

Suggested Citation

  • John S. Heywood & Daniel Parent, 2009. "Performance Pay and the White-Black Wage Gap," Cahiers de recherche 0916, CIRPEE.
  • Handle: RePEc:lvl:lacicr:0916
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    Cited by:

    1. Jennifer Laird, 2017. "Public Sector Employment Inequality in the United States and the Great Recession," Demography, Springer;Population Association of America (PAA), vol. 54(1), pages 391-411, February.
    2. Chiang, Hui-Yu & Ohtake, Fumio, 2014. "Performance-pay and the gender wage gap in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 71-88.
    3. Ghazala Azmat & Rosa Ferrer, 2017. "Gender Gaps in Performance: Evidence from Young Lawyers," Sciences Po publications info:hdl:2441/3t1fcs7p369, Sciences Po.
    4. 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.
    5. Guido Friebel & Matthias Heinz & Miriam Krueger & Nikolay Zubanov, 2017. "Team Incentives and Performance: Evidence from a Retail Chain," American Economic Review, American Economic Association, pages 2168-2203.
    6. Romain Aeberhardt & Élise Coudin & Roland Rathelot, 2017. "The heterogeneity of ethnic employment gaps," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(1), pages 307-337, January.
    7. repec:iza:izawol:journl:2017:n:365 is not listed on IDEAS
    8. Simone Balestra & Uschi Backes-Gellner, 2014. "Heterogeneous effects of pupil-to-teacher ratio policies - A look at class size reduction and teacher aide," Economics of Education Working Paper Series 0102, University of Zurich, Department of Business Administration (IBW), revised Apr 2017.
    9. Bryan, Mark & Bryson, Alex, 2016. "Has performance pay increased wage inequality in Britain?," Labour Economics, Elsevier, vol. 41(C), pages 149-161.
    10. Jan Kluge & Michael Weber, 2015. "Decomposing the German East-West wage gap," ifo Working Paper Series 205, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    11. Fortin, Nicole & Lemieux, Thomas & Firpo, Sergio, 2011. "Decomposition Methods in Economics," Handbook of Labor Economics, Elsevier.
    12. Joanna Tyrowicz & Magdalena Smyk, 2017. "Wage inequality and structural change," GRAPE Working Papers 8, GRAPE Group for Research in Applied Economics.
    13. Ghazala Azmat & Rosa Ferrer Zarzuela, 2012. "Gender gaps in performance: Evidence from young lawyers," Economics Working Papers 1300, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2015.
    14. Katarzyna Bech & Joanna Tyrowicz, 2017. "Estimating gender wage gap in the presence of efficiency wages -- evidence from European data," GRAPE Working Papers 20, GRAPE Group for Research in Applied Economics.
    15. Keng, Shao-Hsun & Orazem, Peter F., 2017. "Performance Pay, the Marriage Market and Rising Income Inequality in Taiwan," ISU General Staff Papers 201702050800001023, Iowa State University, Department of Economics.
    16. Sergio Pinheiro Firpo, 2017. "Identifying and measuring economic discrimination," IZA World of Labor, Institute for the Study of Labor (IZA), pages 347-347, March.
    17. 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.
    18. 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.
    19. Merlino, Luca Paolo, 2012. "Discrimination, technology and unemployment," Labour Economics, Elsevier, pages 557-567.
    20. repec:spr:jlabre:v:38:y:2017:i:4:d:10.1007_s12122-017-9256-5 is not listed on IDEAS
    21. Simone Balestra & Uschi Backes-Gellner, 2017. "Heterogeneous effects of pupil-to-teacher ratio policies - A look at class size reduction and teacher aide," Economics of Education Working Paper Series 0130, University of Zurich, Department of Business Administration (IBW).
    22. Maury Gittleman & Brooks Pierce, 2015. "Pay for Performance and Compensation Inequality: Evidence from the ECEC," ILR Review, Cornell University, ILR School, vol. 68(1), pages 28-52, January.
    23. 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.
    24. 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.

    More about this item

    Keywords

    Racial wage differentials; compensation practices;

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • 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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