Job Characteristics and the Form of Compensation

Abstract:     
In this paper we introduce a way to systematically organize the choice between different forms of compensation based upon observable job characteristics. Secondly, we explore the determinants of compensation based upon questionnaire responses concerning job characteristics and methods of pay contained in the Quality of Employment Survey (QES), the National Longitudinal Survey of Youth (NLSY), the Panel Study of Income Dynamics (PSID), and the Current Population Survey. The main conclusion is that there is no single model of the employment relationship that can explain the variation in compensation form. We draw upon both agency and incomplete contract models to study the interplay between job characteristics and compensation. Specific results include a) the number of tasks seems to be associated with the use of incomplete contracts; b) jobs with high power incentives (piece or commission rates) tend to be associated with more worker autonomy and fewer tasks performed than hourly paid or salary jobs; c) tight labor market conditions tend to be associated with increased use of bonuses and promotions.

Working Paper Series