On the Cyclicality of Real Wages and Employment: New Evidence and Stylized Facts from Performance Pay and Fixed Wage Jobs

Abstract

Using the National Compensation Survey between 2004-2017, we document substantial cyclical heterogeneity among performance pay and fixed wage jobs. Using within-establishment variation among jobs that are classified on the basis of duties and responsibilities, we find that performance pay jobs respond primarily by adjusting the intensive margin of compensation per worker over the business cycle, whereas fixed wage jobs respond by adjusting the extensive margin of employment. These results are driven by the fact that firms can more easily adjust the strength of incentives in performance pay jobs over the business cycle.

Keywords: business cycle, compensation, employment, incentives, pay for performance

JEL Classification: J21, J22, J31