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Performance-related pay, efficiency wages and the shape of the tenure-earnings profile


Reference:

Sessions, J. G. and Skatun, J. D., 2016. Performance-related pay, efficiency wages and the shape of the tenure-earnings profile. The Manchester School

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    Official URL:

    http://dx.doi.org/10.1111/manc.12147

    Abstract

    Whilst it is well known that performance-related pay (PRP) mayincrease wage inequality within a firm, there is an inter-temporal lifecycleaspect that has been largely ignored in the literature. In thispaper, we investigate theoretically how the introduction of PRP willinfluence the wage and remuneration profile over time. We develop asimple two-period model of efficiency wages that rationalizes recentempirical findings suggesting PRP flattens the pay-tenure profile. Suchattenuation has important implications for the credibility of long-termemployment contracts as it suggests that agency rather than humancapital considerations drive the profile.

    Details

    Item Type Articles
    CreatorsSessions, J. G.and Skatun, J. D.
    DOI10.1111/manc.12147
    DepartmentsFaculty of Humanities & Social Sciences > Economics
    RefereedYes
    StatusPublished
    ID Code49837

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