Job Characteristics, Wages, and the Employment Contract

Abstract

T his paper explores some of the deter-minants of compensation in the United States. We suggest that compensation systems should be viewed as an integral part of the production process. We also wish to highlight the diversity in observed systems of pay that is often overlooked when examining wage trends from a macroeconomic perspective. 1 A goal of the work reviewed here is to introduce compensation models that make predic-tions based upon observed job characteris-tics, and illustrate how compensation form may respond to changes in both the nature of work and labor-market conditions. The extent to which we are able to relate compensation to job characteristics is very much limited by the data. Fortunately, avail-able data sets do have some information that we can use. In this essay we use both the National Longitudinal Survey of Youth (NLSY) and the Panel Study on Income Dynamics (PSID) to explore these issues. These data are not perfect, but they do provide infor-mation on some quite distinctive compen-sation practices. Table 1 reports the incidence of pay method by occupation for the NLSY. Workers were asked if during the current year they received any of the following types of compensation: