ECON60822 Labour Economics 2023 Semester 2

1.          Define skill-biased technological change. Explain why the presence of such skill- biased technological change may mean that performance pay could increase wage inequality. You can use the framework in Figure II of the article. [25 marks]

2.          Consider Table I of the article. Is the unionisation rate among workers with

performance-pay jobs higher or lower than those without? What are the economic reasons for such a difference in the unionisation rate between the two groups? [20 marks]

3.          Monitoring worker performance in some occupations and industries is easier than in others. Give an example of an occupation/industry in which monitoring is difficult and explain why. How will the differences in the ease of monitoring  worker performance across sectors in the economy impact the prevalence of performance pay in those sectors? You can use the framework in Figure I of the article. [15 marks]

4.         Table II of the article shows that occupation and industry changes between 1976- 1978 and 1990-1993 explained about 50% of the total change in the prevalence of performance pay in the US economy (using their estimate that is adjusted for the number of times the job match is observed). What does this evidence suggest about the sectoral shift in the US economy regarding the ease of monitoring workers and skill-biased technological change? [10 marks]

5.          Of all the economic reasons for the rise of performance pay in the US economy over the period considered by the authors, which do they argue is more important and on what basis? Explain your answer and whether you find their arguments and assumptions convincing. [30 marks]