♠ Posted by Emmanuel in Neoliberalism
at 6/17/2007 12:55:00 AM
I've gone through some potential explanations for the rise in income inequality in recent posts such as the Marxist "internal contradictions of capitalism" and the "offshoring" theses. The former holds that labor is not being rewarded for added productivity while the latter holds that productivity gains may be exaggerated by the attribution of additional productivity from offshoring to domestic productivity. Economists Thomas Lemieux (U of British Columbia), Bentley MacLeod (Columbia University), and Daniel Parent (McGill) present yet another view: some are more productive than others, and this difference is being magnified in wider salary differences as more firms adopt pay-for-performance compensation schemes. In their regression model, nearly a quarter of the variance in pay is accounted for by the adoption of pay-for-performance schemes. This paper is available from the Institute for the Study of Labor, and its abstract follows: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).
