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On the Cyclicality of Real Wages and Employment: New Evidence and Stylized Facts from Performance Pay and Fixed Wage Jobs
[“Options, the Value of Capital and Investment,”]

Author

Listed:
  • Christos A Makridis
  • Maury Gittleman

Abstract

Using the National Compensation Survey between 2004 and 2017, we document four stylized facts and quantify cyclical heterogeneity among performance pay (PP) and fixed wage (FW) jobs. First, there is substantial dispersion in the incidence of PP, even within the same occupation; hourly compensation growth in PP jobs has been nearly three-times as large as that in FW jobs; the share of PP is increasing in employer size; the provision of PP is largely a firm-level decision. Second, we find that hourly compensation growth among PP (FW) jobs increases (decreases) in response to state employment growth. Furthermore, FW jobs respond primarily by adjusting the extensive margin of employment. Our estimates are identified off of comparisons of similar jobs within the same establishment over time. These business cycle dynamics are consistent with models that feature heterogeneity in organizational practices, allowing firms to adjust to uncertainty over the business cycle under flexibility in compensation contracts. (JEL J21, J22, J31, E32, M55).

Suggested Citation

  • Christos A Makridis & Maury Gittleman, 2022. "On the Cyclicality of Real Wages and Employment: New Evidence and Stylized Facts from Performance Pay and Fixed Wage Jobs [“Options, the Value of Capital and Investment,”]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 38(3), pages 889-920.
    • Handle: RePEc:oup:jleorg:v:38:y:2022:i:3:p:889-920.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewab032
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    More about this item

    Keywords

    business cycle; compensation; employment; incentives; pay for performance;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

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