Firms' Choice of Method of Pay

47 Pages Posted: 23 Apr 2004 Last revised: 18 Nov 2022

See all articles by Charles Brown

Charles Brown

University of Michigan; National Bureau of Economic Research (NBER)

Date Written: August 1989

Abstract

Three types of pay-setting methods are piece rates (pay mechanically linked to output), merit pay (pay based on less formal judgments by one's supervisor), and standard rates (pay based on one's job classification and perhaps seniority, but not directly on performance). Firms' choice among methods depends on balancing the gains from more precise links between performance and pay against the costs of either precise or judgmental measures of output. Using data from the BLS Industry Wage Study program, hypotheses suggested by this observation are tested and for the most part confirmed.

Suggested Citation

Brown, Charles C., Firms' Choice of Method of Pay (August 1989). NBER Working Paper No. w3065, Available at SSRN: https://ssrn.com/abstract=463491

Charles C. Brown (Contact Author)

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