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Higher and Higher?: Performance Pay and Wage Inequality in Germany

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  • Katrin Sommerfeld

Abstract

Performance pay is of growing importance to the wage structure as it applies to a rising share of employees. At the same time wage dispersion is growing continuously. This leads to the question of how the growing use of performance pay schemes is related to the increase in wage inequality? German SOEP data for the years 1984 to 2009 confirm the large increase in the application of performance pay schemes. This in turn led to an upward shift of the wage distribution by about one log point. However, it did not contribute to the growth in wage inequality. Even though wage inequality grew within the group of employees who receive performance pay, it grew even more so within the group who do not receive it. Still, the wage difference between both wage schemes remained flat over the distribution. The empirical analysis employs sequential decompositions in a quantile regression framework.

Suggested Citation

  • Katrin Sommerfeld, 2012. "Higher and Higher?: Performance Pay and Wage Inequality in Germany," SOEPpapers on Multidisciplinary Panel Data Research 476, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp476
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    Cited by:

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    2. Shao-Hsun Keng & Peter F. Orazem, 2019. "Performance pay, the marriage market and rising income inequality in Taiwan," Review of Economics of the Household, Springer, vol. 17(3), pages 969-992, September.
    3. Maury Gittleman & Brooks Pierce, 2015. "Pay for Performance and Compensation Inequality: Evidence from the ECEC," ILR Review, Cornell University, ILR School, vol. 68(1), pages 28-52, January.
    4. Alex Bryson & John Forth & Lucy Stokes, 2014. "The Performance Pay Premium: How Big Is It and Does It Affect Wage Dispersion?," National Institute of Economic and Social Research (NIESR) Discussion Papers 433, National Institute of Economic and Social Research.
    5. Bozhechkova Alexandra & Trunin Pavel & Sinelnikova-Muryleva Elena & Petrova Diana & Chentsov Alexander, 2018. "Building of monetary and currency markets models," Research Paper Series, Gaidar Institute for Economic Policy, issue 175P, pages 1-96.
    6. Fei Peng & Sajid Anwar & Lili Kang, 2020. "Job Movement and Real Wage Flexibility in Eastern and Western Parts of Germany," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(4), pages 764-789, October.
    7. Fei Peng & Sajid Anwar & Lili Kang, 0. "Job Movement and Real Wage Flexibility in Eastern and Western Parts of Germany," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 0, pages 1-26.

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    More about this item

    Keywords

    Performance pay; wage structure; quantile regression; sequential decomposition;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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