Performance Pay and Wage Inequality

47 Pages Posted: 27 Jun 2007  

Thomas Lemieux

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Daniel Parent

McGill University - Department of Economics

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Date Written: May 2007

Abstract

We document that an increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonuses, commissions, or piece-rates. We find that compensation in performance-pay jobs is more closely tied to both observed (by the econometrician) and unobserved productive characteristics of workers. Moreover, the growing incidence of performance-pay can explain 24 percent of the growth in the variance of male wages between the late 1970s and the early 1990s, and accounts for nearly all of the top-end growth in wage dispersion(above the 80th percentile).

Suggested Citation

Lemieux, Thomas and MacLeod, W. Bentley and Parent, Daniel, Performance Pay and Wage Inequality (May 2007). NBER Working Paper No. w13128. Available at SSRN: https://ssrn.com/abstract=988938

Thomas Lemieux (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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William Bentley MacLeod

Columbia University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics ( email )

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Daniel Parent

McGill University - Department of Economics ( email )

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Montreal, QC H3A 2T7
Canada
514-398-4846 (Phone)
514-398-4938 (Fax)

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