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We document that an increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonuses, commissions, or piece-rates. We find that compensation in performance-pay jobs is more closely tied to both observed (by the econometrician) and unobserved productive characteristics of workers. Moreover, the growing incidence of performance-pay can explain 24 percent of the growth in the variance of male wages between the late 1970s and the early 1990s, and accounts for nearly all of the top-end growth in wage dispersion(above the 80th percentile).

AbstractThis paper considers several possible channels behind the well‐documented effect of education on earnings. The first channel is that education makes workers more productive on a given task, as in a conventional human capital framework. The second channel is based on the idea that education helps workers get assigned to higher‐paying occupations where output is more sensitive to skill. A third and final channel is that workers are more productive and earn more when they are matched to a job related to their field of study. Using data from the 2005 National Graduate Survey and the 2006 Canadian Census, I find that channels two and three account for close to half of the conventionally measured return to education. The results indicate that the return to education varies greatly depending on occupation, field of study and the match between these two factors.

This paper shows that a large fraction of the 1973–2003 growth in residual wage inequality is due to composition effects linked to the secular increase in experience and education, two factors associated with higher within-group wage dispersion. The level and growth in residual wage inequality are also overstated in the March Current Population Survey (CPS) because, unlike the May or Outgoing Rotation Group (ORG) CPS, it does not measure directly the hourly wages of workers paid by the hour. The magnitude and timing of the growth in residual wage inequality provide little evidence of a pervasive increase in the demand for skill due to skill-biased technological change.

Over the last fifteen years, many researchers have attempted to explain the determinants and changes of wage inequality. I propose a simple procedure to decompose changes in the distribution of wages or in other distributions into three factors: changes in regression coefficients; the distribution of covariates, and residuals. The procedure requires only estimating standard OLS regressions augmented by a logit or probit model. It can be extended by modelling residuals as a function of unmeasured skills and skill prices. Two empirical examples showing how the procedure works in practice are considered. In the first example, sources of differences in the wage distribution in Alberta and British Columbia are considered; in the second, sources of change in overall wage inequality in the United States, 1973–99, are re–examined. Finally, the proposed procedure is compared with existing procedures. JEL classification: J3 La décomposition des changements dans les distributions de salaires : une approche unifée. Au cours des quinze dernières années, nombre d'études se sont penchées sur les déterminants et les changements de la distribution des salaires. Ce mémoire propose une procédure pour décomposer les changements de la distribution des salaires en trois éléments: les changements dans les coefficients de régression, la distribution des regresseurs et les changements résiduels. Cette procédure ne nécessite que l'estimation de regressions par moindre carrés ordinaires et d'un modèle probit ou logit. L'auteur montre aussi comment modéliser les résidus en fonction de compétences non mesurées. La procédure proposée est mise en application dans le contexte de deux exemples: la distribution des salaires en Alberta et en Colombie–Britannique et les changements dans la distribution des salaires de 1973 à 1999 aux Etats–Unis. Le mémoire examine aussi comment cette procédure se compare aux méthodes proposées par d'autres chercheurs.