Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/35796
Authors: 
Barth, Erling
Bratsberg, Bernt
Hægeland, Torbjørn
Raaum, Oddbjørn
Year of Publication: 
2009
Series/Report no.: 
IZA discussion papers 4137
Abstract: 
This paper examines the impact of performance-related pay on wage differentials within firms. Our theoretical framework predicts that, compared to a fixed pay system, pay schemes based on individual output increase within-firm wage inequality, while group-based bonuses have minor effects on wage dispersion. Theory also predicts an interaction between performance-related pay and union bargaining, where union power reduces the impact of performance pay on wage dispersion. The empirical contribution utilizes two recent Norwegian employer surveys, linked to a full set of individual employee pay records. A longitudinal sub-sample allows for identification based on fixed establishment effects. Introduction of performance-related pay is shown to raise residual wage inequality in nonunion firms, but not in firms with high union density. Our findings suggest that even though performance-related pay appears to be on the rise, the overall impact on wage dispersion is likely to be small, particularly in European countries with strong unions.
Subjects: 
Performance related pay
wage inequality
union bargaining
JEL: 
J31
J33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
241.89 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.