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Learning and the Form of Compensation

Abstract  

Using data from the PSID and an empirical setup similar to the one used in Altonji and Pierret (Q J Econ 116(1):313–350, 2001)’s paper on wages and employer learning, we find that the coefficient of a hard-to-observe correlate of productivity—parents’
educational attainment—in a wage regression increases more rapidly with experience in performance pay jobs than in nonperformance
pay jobs. This result is driven entirely by bonus pay jobs as opposed to commission/piece rate jobs. In the latter, there
is no evidence that the importance of parental education in the wage determination process increases over time. This is consistent
with the notion that explicit pay-for-performance compensation schemes are, by design, revealing workers’ productivities and
that employers need not infer anything about worker productivity when the payment is ex post as is the case for commissions
and piece rates as opposed to having to set pay ex ante.

  • Content Type Journal Article
  • Pages 1-20
  • DOI 10.1007/s12122-012-9149-6
  • Authors
    • Bok Hoong Young Hoon, Department of Economics, McGill University, Montreal, QC, Canada H3A 2T7
    • Daniel Parent, Institute of Applied Economics, HEC Montreal, 3000 Chemin de la Cote Sainte-Catherine, Montreal, QC, Canada H3T 2A7
    • Journal Journal of Labor Research
    • Online ISSN 1936-4768
    • Print ISSN 0195-3613
Posted in: Journal Article Abstracts on 08/16/2012 | Link to this post on IFP |
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