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Higher and higher? Performance pay and wage inequality in Germany

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  • K. 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 is the growing use of performance pay schemes related to the increase in wage inequality? German Socio-Economic Panel (SOEP) data for the years 1984 -- 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. 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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  • K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:30:p:4236-4247
    DOI: 10.1080/00036846.2013.783682
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    6. 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.
    7. 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.
    8. 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.

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    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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