This Friday at the LSE, Thomas Lemieux from the University of British Columbia presents his recent paper, Bonus Pay and Wage Inequality (PDF) to the CEP labour economics seminar. Co-authored with W. Bentley Macleod & Daniel Parent, they find that almost one third of the widening in US wage inequality amongst men between the late 1970s and the early 1990s was due to the growing use of bonuses. Here's the abstract:
An increasing fraction of jobs in the U.S. labor market pay workers a bonus in addition to regular wages and salaries. In this paper, we look at the e¤ect of the growing incidence of bonus pay on wage inequality. The basic premise of the paper is that jobs paying bonuses have a more "competitive" pay structure that rewards productivity di¤erences more than other jobs.
Consistent with this view, we show that compensation in bonus jobs is more closely tied to both measured (by the econometrician) and unmeasured productive characteristics of workers. We conclude that the growing incidence of bonus jobs accounts for 30 percent of the growth in male wage inequality between the late 1970s and the early 1990s.
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