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Within-Firm Pay Inequality and Productivity

Author

Listed:
  • Melanie Wallskog
  • Nicholas Bloom
  • Scott W. Ohlmacher
  • Cristina Tello-Trillo

Abstract

Combining confidential Census worker and firm data, we find three key results. First, employees at more productive firms earn higher pay at all earnings levels. Second, this pay-productivity relationship strengthens with seniority, doubling from an elasticity of 0.07 for pay on productivity for the median-paid employee to 0.15 for the top-paid employee. Consequently, more productive firms have higher within-firm inequality. Our data suggests this is driven by their greater adoption of aggressive performance-pay bonus and management schemes. Finally, the magnitude of this pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980.

Suggested Citation

  • Melanie Wallskog & Nicholas Bloom & Scott W. Ohlmacher & Cristina Tello-Trillo, 2024. "Within-Firm Pay Inequality and Productivity," NBER Working Papers 32240, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32240
    Note: CF EFG LS PR
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    JEL classification:

    • J0 - Labor and Demographic Economics - - General

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