Wage Levels and Method of Pay
NBER Working Paper No. 3336
The traditional research on method of pay and wages compares those paid piece rates with those paid by the hour, and finds (as predicted by the theory) that those paid piece rates earn more. In this paper, those paid by the hour are divided into those paid standard rates (wage does not vary with performance) and those paid by merit pay plans. An extension of the standard theory predicts that those paid piece rates would have the highest earnings, and those paid standard rates the lowest, with merit pay an "in between" status. The evidence, however, from the Industry Wage Surveys is that those under merit pay receive lower wages than those in the other two groups.
Published: RAND Journal of Economics, Vol. 23, Autumn 1992, pp.366-375