Performance Pay and Wage Inequality

48 Pages Posted: 5 Jul 2007

See all articles by Thomas Lemieux

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: June 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).

Keywords: performance pay, compensation, bonus pay, incentive pay, wage inequality

JEL Classification: J31, J33

Suggested Citation

Lemieux, Thomas and MacLeod, William Bentley and Parent, Daniel, Performance Pay and Wage Inequality (June 2007). IZA Discussion Paper No. 2850, Available at SSRN: https://ssrn.com/abstract=998266

Thomas Lemieux

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 (Contact Author)

Columbia University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Daniel Parent

McGill University - Department of Economics ( email )

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514-398-4846 (Phone)
514-398-4938 (Fax)

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