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

80 Pages Posted: 14 Aug 2017 Last revised: 23 Oct 2020

See all articles by Christos Makridis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Maury Gittleman

Bureau of Labor Statistics

Date Written: March 26, 2019

Abstract

Using the National Compensation Survey between 2004-2017, we document three stylized facts and quantify cyclical heterogeneity among performance pay and fixed wage jobs. First, there is substantial dispersion in the incidence of performance pay, even within the same occupation; hourly compensation growth in performance pay job has been nearly three-times as large as that in fixed wage jobs; the share of performance pay is increasing in employer size. Second, we find that performance pay jobs respond primarily by adjusting the intensive margin of hourly compensation over the business cycle, whereas fixed wage jobs respond by adjusting the extensive margin of employment. Our estimates are identified off of comparisons of similar jobs within the same establishment over time. We provide suggestive evidence that performance pay allows firms to adjust more easily to uncertainty over the business cycle.

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

JEL Classification: J21, J22, J31

Suggested Citation

Makridis, Christos and Gittleman, Maury, On the Cyclicality of Real Wages and Employment: New Evidence and Stylized Facts from Performance Pay and Fixed Wage Jobs (March 26, 2019). Available at SSRN: https://ssrn.com/abstract=3017034 or http://dx.doi.org/10.2139/ssrn.3017034

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Maury Gittleman

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Room 4130
Washington, DC 20212
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
152
Abstract Views
1,013
rank
221,168
PlumX Metrics