Compensation System and Earnings Inequality

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Title:	Compensation System and Earnings Inequality
Authors:	Jiang, Lily;Yu, Hsi-Cheng
Contributors:	淡江大學經濟學系
Keywords:	Performance pay;Principal-agent theory;Earnings inequality
Date:	2013-01-01
Issue Date:	2014-03-09 22:32:03 (UTC+8)
Publisher:	Springer
Abstract:	We develop a wage-structure determination model in which a firm with incomplete information offers an optimal sequence of contracts for its heterogeneous employees. The model integrating the principal-agent framework and monitoring mechanism is characterized by endogeneity of the selection of two compensation methods: performance-pay and non-performance-pay schemes. The model is used to examine the switching of pay schemes and its inequality effect. We point out that the growth of performance-pay jobs is accompanied by a downward adjustment of the rewards for performance, which brings forth a countervailing effect on wage inequality. The simulation analysis of a case of uniform-distributed ability reveals that the net effect of the growth of performance-pay jobs on wage inequality depends on the driving force behind the switch.
Relation:	Journal of Economic Inequality 12, pp.99-116
DOI:	10.1007/s10888-012-9239-y
Appears in Collections:	[Graduate Institute & Department of Industrial Economics] Journal Article [Graduate Institute & Department of Economics] Journal Article

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