Performance-related pay and gender wage differences

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We study the impact of performance-related pay (PRP) on gender wage differences using Finnish-linked employer–employee panel data. Controlling for unobserved person and firm effects, we find that bonuses increase women’s earnings slightly less than men’s, but the economic significance of the difference is negligible. Piece rates and reward rates, however, tend to increase gender wage differentials. Thus, the nature of a PRP plan is important for gauging the impact of PRP on gender wage differentials. A comparison with OLS results shows the importance of controlling for an unobserved person and firm effects.

Keywords: J16; J33; M52; compensation; gender; linked employer–employee data; panel data

Document Type: Research Article


Affiliations: 1: Labour Institute for Economic Research, Pitkänsillanranta 3 A, 00530, Helsinki, Finland 2: The Research Institute of the Finnish Economy, Lönnrotinkatu 4 B, 00210, Helsinki, Finland

Publication date: December 1, 2013

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