Performance pay on the rise has small impact on wage dispersion

Erling Barth, Bernt Bratsberg, Torbjørn Hægeland, and Oddbjørn Raaum have examined the impact of performance-related pay on wage differentials within firms. The empirical contribution utilizes two recent Norwegian employer surveys, linked to a full set of employee records. Their study shows that introduction of performance-related pay raises residual wage inequality in non-union firms, but not in firms with high union density. Their findings suggest that even though performance-related pay appears to be on the rise, the overall impact on wage dispersion is likely to be small, particularly in European countries with strong unions.