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

  • Katrin Sommerfeld

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.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 476.

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Length: 43 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp476
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