Overeducation, Performance Pay and Wages: Evidence from Germany

Mehrzad B. Baktash

No 2023-08, Research Papers in Economics from University of Trier, Department of Economics

Abstract: Overeducated workers are more productive and have higher wages in comparison to their adequately educated coworkers in the same jobs. However, they face a series of challenges in the labor market, including lower wages in comparison to their similarly educated peers who are in correctly matched jobs. Yet, less consensus exists over the adjustment mechanisms to overcome the negative consequences of overeducation. This study examines the hypotheses that overeducated workers sort into performance pay jobs as an adjustment mechanism and that performance pay moderates their wages. Using German Socio-Economic Panel, I show that overeducation associates with a higher likelihood of sorting into performance pay jobs and that performance pay moderates the wages of overeducated workers positively. It also holds in endogenous switching regressions accounting for the potential endogeneity of performance pay. Importantly, the positive role of performance pay is particularly larger for the wages of overeducated women.

Keywords: Performance Pay; Overeducation; Wages; Educational Mismatch; Sorting (search for similar items in EconPapers)
JEL-codes: I21 J24 J31 J33 M52 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2023
New Economics Papers: this item is included in nep-eur and nep-inv
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Related works:
Working Paper: Overeducation, Performance Pay and Wages: Evidence from Germany (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:trr:wpaper:202308

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