Does performance pay increase the risk of marital instability?

Abstract

This study is the first to systematically examine the association between performance pay and marital instability. Using German survey data on married couples and including an extensive set of controls, we show that performance pay is associated with an increased probability of subsequent separation or divorce. Yet, the results are entirely gender specific. When husbands earn performance pay, no association with marital instability is found. When wives earn performance pay, the association is large and robust. This pattern persists across a variety of modeling choices and holds in instrumental variable estimations accounting for the endogeneity of performance pay. We argue that the pattern fits theoretical expectations and discuss the implications.