Investigating the organizational sources of high-wage earnings growth and rising inequality

Recent studies indicate that the growth of earnings inequality in the United States since the late 1970s reflects organizational changes in the process of earnings determination. Existing research primarily focuses on workplace changes that reduce earnings levels for middle- and low-wage workers despite the importance of high-wage gains for rising inequality. This paper investigates how organizational context affects the relationship between occupation and earnings, with a focus on high-wage occupations. The earnings associated with low-wage occupations do not vary across industry groups. By contrast, the earnings advantages associated with high-wage occupations vary across industry groups in relation to the industry’s prevalence of performance pay practices. Pay initiatives that reward individuals for company performance explain much of the inter-industry variance in managerial and professional earnings slopes. The growth of performance-based pay represents an organizational change in earnings determination that may serve as a mechanism of high-wage earnings growth and rising inequality.