Labor Studies.

• Position: Program and Working Group Meeting

The NBER's Program on Labor Studies met in Cambridge on November 17. NBER Research Associates Lawrence E Katz and Richard B. Freeman, both of Harvard University, organized the program. These papers were discussed:

Joseph G. Altonji, Yale University and NBER, and Anthony A. Smith and Ivan Vidangos, Yale University, "Modeling Earnings Dynamics"

Thomas Lemieux, University of British Columbia and NBER; W. Bentley Macleod, Columbia University; and Daniel Parent, McGill University, "Performance Pay and Wage Inequality"

Sandra E. Black, University of California, Los Angeles and NBER, and Alexandra Spitz-Oener, Humboldt University Berlin, "Explaining Women's Success: Technological Change and the Skill Content of Women's Work"

Bryan S. Graham, University of California, Berkeley and NBER; Guido W. Imbens, Harvard University and NBER; and Geert Ridder, University of Southern California, "Complementarity and Aggregate Implications of Assortative Matching: A Nonparametric Analysis"

Carmit Segal, Harvard University, "Motivation, Test Scores, and Economic Success"

Anne Case and Christina Paxson, Princeton University and NBER, "Stature and Status: Height, Ability, and Labor Market Outcomes" (NBER Working Paper No. 12466)

Altonji, Smith, and Vidangos use generalized indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. Their model incorporates state and duration dependence in several variables, multiple sources of unobserved heterogeneity, job-specific error components in both wages and hours, and measurement error. They estimate the dynamic response of wage rates, hours, and earnings to various shocks, and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime. Shocks associated with job changes make a large contribution to the variance of career earnings and operate mostly through the job-specific error components in wages and hours. Unemployment shocks also make a large contribution and operate mostly through long-term effects on the wage rate.

An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using a bonus, a commission, or a piece rate. In this paper, Lemieux, Macleod, and Parent look at the effect of the growing incidence of performance pay on wage inequality. The basic premise of the paper is that performance pay jobs have a more "competitive" pay structure that rewards...