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The Dispersion of Employees' Wage Increases and Firm Performance

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Author Info
Christian Grund
Niels Westergaard-Nielsen

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Abstract

Previous studies examining intra-firm wage dispersion and firm performance have focused on wage levels. The authors of this study argue that for purposes of comparing wage dispersion's positive incentive effects with its adverse morale effects, the dispersion of wage increases is more revealing than the dispersion of wage levels. It is reasonable to expect greater dispersion of wage increases to be associated with higher monetary incentives, but also with increased perceptions of unfairness. The authors' analysis of linked employer-employee data from Denmark for the years 1992-97 shows that the dispersion of wage growth within firms generally had a negative association with firm performance. The results are mainly driven by white-collar rather than blue-collar workers, perhaps because blue-collar wages are typically regulated by contracts and union rules that explicitly take account of fairness and equity.

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Article provided by ILR Review, ILR School, Cornell University in its journal ILR Review.

Volume (Year): 61 (2008)
Issue (Month): 4 (July)
Pages: 485-501
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Handle: RePEc:ilr:articl:v:61:y:2008:i:4:p:485-501

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gächter, Simon & Nosenzo, Daniele & Sefton, Martin, 2008. "The Impact of Social Comparisons on Reciprocity," IZA Discussion Papers 3639, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Nils Braakmann, 2008. "Intra-firm wage inequality and firm performance – First evidence from German linked employer-employee-data," Working Paper Series in Economics 77, University of Lüneburg, Institute of Economics. [Downloadable!]
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