Performance Pay and Wage Inequality
48 Pages Posted: 5 Jul 2007
Date Written: June 2007
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: Suggested Citation