July 2012

Volume 51, Issue 3
Pages TBA

Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation
FREDRIK ANDERSSON, ELIZABETH E. DAVIS, MATTHEW L. FREEDMAN, JULIA I. LANE, BRIAN P. MCCALL, and L. KRISTIN SANDUSKY

Abstract
This paper exploits longitudinal employer-employee matched data from the U.S. Census Bureau to investigate the contribution of worker and firm reallocation to changes in earnings inequality within and across industries between 1992 and 2003. We find that factors that cannot be measured using standard cross-sectional data, including the entry and exit of firms and the sorting of workers across firms, are important sources of changes in earnings distributions over time. Our results also suggest that the dynamics driving changes in earnings inequality are heterogeneous across industries.

--------------------------------------------------------------------------------------------------------------
Performance Measurement and Incentive Plans
ANTTI KAUHANEN & SAMI NAPARI

Abstract
This paper explores performance measurement in incentive plans. Based on theory, we argue that differences in the nature of jobs between blue- and white-collar employees lead to differences in incentive systems. We find that performance measurement for white-collar workers is broader in terms of the performance measures, the organizational level of performance measurement and the time horizon. The intensity of incentives is also stronger for white-collar employees. All of these findings are consistent with theory.

--------------------------------------------------------------------------------------------------------------
Collective Wage Contracts, Opt-Out Clauses and Firm Wage-Differentials: Evidence from Linked Employer Employee Data
ALFRED GARLOFF AND NICOLE GUERTZGEN

Abstract
Using a large linked employer-employee data set, this paper studies whether the existence and use of flexibility  provisions within centralised collective wage agreements alters the structure of pay across employers.  Using level regressions and first difference methods,  we find that - compared with contracts without any flexibility  - wages under opt-out clauses are more responsive to local profitability conditions in below-average performing establishments. In contrast, the sensitivity of wages to local profitability  is smaller in high-performance  establishments.  Our results provide further evidence for a threat  potential of the existence of opt-out clauses whose impact on flexibility is larger than the real application.

--------------------------------------------------------------------------------------------------------------
Pay for Performance and Corporate Governance Reform
HRISTOS DOUCOULIAGOS,  JANTO HAMAN, AND T.D. STANLEY

Abstract
Directors' pay and corporate governance continue to generate public outrage and calls for reform. Our meta-regression analysis of all comparable UK pay-for-performance estimates finds little, if any, meaningful association between directors' pay and corporate performance. However, there is evidence of the effectiveness of past 'comply-or-explain' rules, especially the Cadbury Report. Unfortunately, the effects of past reform efforts tend to erode over time. The paper also explores differences between pay-performance estimates, finding that these are largely explained by how pay and performance are measured by a given study.

--------------------------------------------------------------------------------------------------------------
Human Resource Management's Effects on Firm Level Relative Efficiency
CLINT CHADWICK, JI-YOUNG AHN AND KIWOOK KWON

Abstract
Using stochastic frontier production functions methodology with data from 1579 private-sector establishments, we demonstrate that HR practices are significantly associated with differences in relative firm level efficiency. Supplemental analysis implies that this efficiency analysis is substantively different than the common approach to evaluating HRM's relationships with firm level labor productivity. The results suggest that HR practices' contributions to relative firm level efficiency are an important but heretofore overlooked factor in the relationship between HRM and firm performance.

--------------------------------------------------------------------------------------------------------------
Tax Progression Under Collective Wage Bargaining and Individual Effort Determination
RONNIE SCHOEB

Abstract
We study the impact of tax policy on wage negotiations, workers' effort, employment, output and welfare under imperfectly observable effort. A higher degree of tax progression always leads to wage moderation, but the well-established result from the wage bargaining literature that a revenue-neutral increase in the degree of tax progression is good for employment does not carry over to the case with wage negotiations and imperfectly observable effort. Introducing tax progression increases employment and output, but we cannot rule out that the negative effort effect of increasing tax progression will lead employment to fall when tax progression is already high.

--------------------------------------------------------------------------------------------------------------
Home Safe: No-Trade Clauses and Player Salaries in Major League Baseball
ROBERTO PEDACE AND CURTIS HALL

Abstract
In this paper, we examine the wage effects of no-trade clauses in Major League Baseball. Using an accepted player salary equation and data from the 2003-2008 seasons, we find evidence that there is a trade-off between monetary compensation and the risk reduction provided by a no-trade clause. The results suggest that players may be able to simultaneously negotiate for a no-trade clause and higher salaries, but this is constrained when players also seek to guarantee their income stream with long-term contracts.