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Relative pay and its effects on firm efficiency in a transitional economy

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  • Firth, Michael
  • Leung, Tak Yan
  • Rui, Oliver M.
  • Na, Chaohong

Abstract

In this study, we examine the impact of relative pay (manager pay divided by average worker pay) on a firm's productivity. Using data from a major transitional economy, China, we find that relative pay is negatively associated with high productivity. Our results provide support for the view that workers are alienated when their incomes are far lower than that of top management and this leads to lower productivity. This effect is most pronounced in labor intensive firms.

Suggested Citation

  • Firth, Michael & Leung, Tak Yan & Rui, Oliver M. & Na, Chaohong, 2015. "Relative pay and its effects on firm efficiency in a transitional economy," Journal of Economic Behavior & Organization, Elsevier, vol. 110(C), pages 59-77.
    • Handle: RePEc:eee:jeborg:v:110:y:2015:i:c:p:59-77
    DOI: 10.1016/j.jebo.2014.12.001
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    More about this item

    Keywords

    Productivity; Top management pay; Relative pay; Transitional economy;
    All these keywords.

    JEL classification:

    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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