IDEAS home Printed from https://ideas.repec.org/a/inm/ororsc/v29y2018i1p17-38.html
   My bibliography  Save this article

Vertical and Horizontal Wage Dispersion and Mobility Outcomes: Evidence from the Swedish Microdata

Author

Listed:
  • Aleksandra Kacperczyk

    (London Business School, London NW1 4SA, United Kingdom)

  • Chanchal Balachandran

    (Institute for Analytical Sociology, Linköping University, S-60174 Norrköping, Sweden)

Abstract

Using employer–employee matched data from Sweden between 2001 and 2008, we test hypotheses designed to assess the contingent nature of the relationship between wage dispersion and cross-firm mobility. Whereas past research has mostly established that dispersed wages increase interfirm mobility, we investigate the conditions under which pay variance might have the opposite effect, serving to retain workers. We propose that the effect of wage dispersion is contingent on organizational rank and that it depends on whether wages are dispersed vertically (between job levels) or horizontally (within the same job level). We find that vertical wage dispersion suppresses cross-firm mobility because it is associated with outcomes beneficial for employees, such as attractive advancement opportunities. By contrast, horizontal wage dispersion increases cross-firm mobility because it is associated with outcomes harmful for employees, such as inequity concerns. We further find that the vertical-dispersion effect is amplified (mitigated) for bottom (top) different-level wage earners because bottom (top) wage earners have the most (least) to gain from climbing the job ladder. Similarly, the horizontal-dispersion effect is amplified (mitigated) for bottom (top) same-level wage earners because bottom (top) wage earners are most (least) subject to negative consequences of this dispersion. More broadly, this study contributes to our understanding of the relationship between wage dispersion and cross-firm mobility.

Suggested Citation

  • Aleksandra Kacperczyk & Chanchal Balachandran, 2018. "Vertical and Horizontal Wage Dispersion and Mobility Outcomes: Evidence from the Swedish Microdata," Organization Science, INFORMS, vol. 29(1), pages 17-38, February.
    • Handle: RePEc:inm:ororsc:v:29:y:2018:i:1:p:17-38
    DOI: 10.1287/orsc.2017.1169
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/orsc.2017.1169
    Download Restriction: no
    File URL: https://libkey.io/10.1287/orsc.2017.1169?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Tåg, Joacim & Åstebro, Thomas & Thompson, Peter, 2016. "Hierarchies and entrepreneurship," European Economic Review, Elsevier, vol. 89(C), pages 129-147.
    3. Viscusi, W Kip, 1979. "Job Hazards and Worker Quit Rates: An Analysis of Adaptive Worker Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 29-58, February.
    4. Shen, Wei & Gentry, Richard J. & Tosi Jr., Henry L., 2010. "The impact of pay on CEO turnover: A test of two perspectives," Journal of Business Research, Elsevier, vol. 63(7), pages 729-734, July.
    5. Oded Stark & Walter Hyll, 2011. "On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers," Journal of Labor Economics, University of Chicago Press, vol. 29(2), pages 349-375.
    6. Jed DeVaro, 2006. "Internal promotion competitions in firms," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 521-542, September.
    7. Barbara S. Lawrence, 2006. "Organizational Reference Groups: A Missing Perspective on Social Context," Organization Science, INFORMS, vol. 17(1), pages 80-100, February.
    8. Iacus, Stefano & King, Gary & Porro, Giuseppe, 2009. "cem: Software for Coarsened Exact Matching," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 30(i09).
    9. Gary King & Christopher Lucas & Richard A. Nielsen, 2017. "The Balance‐Sample Size Frontier in Matching Methods for Causal Inference," American Journal of Political Science, John Wiley & Sons, vol. 61(2), pages 473-489, April.
    10. Matthew Bidwell & Ethan Mollick, 2015. "Shifts and Ladders: Comparing the Role of Internal and External Mobility in Managerial Careers," Organization Science, INFORMS, vol. 26(6), pages 1629-1645, December.
    11. Lazear, Edward P. & Oyer, Paul, 2004. "Internal and external labor markets: a personnel economics approach," Labour Economics, Elsevier, vol. 11(5), pages 527-554, October.
    12. Daniel W. Elfenbein & Barton H. Hamilton & Todd R. Zenger, 2010. "The Small Firm Effect and the Entrepreneurial Spawning of Scientists and Engineers," Management Science, INFORMS, vol. 56(4), pages 659-681, April.
    13. Viscusi, W Kip, 1980. "Sex Differences in Worker Quitting," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 388-398, August.
    14. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    15. Lorenzo Caliendo & Ferdinando Monte & Esteban Rossi-Hansberg, 2015. "The Anatomy of French Production Hierarchies," Journal of Political Economy, University of Chicago Press, vol. 123(4), pages 809-852.
    16. Iacus, Stefano M. & King, Gary & Porro, Giuseppe, 2011. "Multivariate Matching Methods That Are Monotonic Imbalance Bounding," Journal of the American Statistical Association, American Statistical Association, vol. 106(493), pages 345-361.
    17. Wise, David A, 1975. "Academic Achievement and Job Performance," American Economic Review, American Economic Association, vol. 65(3), pages 350-366, June.
    18. Robert H. Topel & Michael P. Ward, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 439-479.
    19. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    20. Tsou, Meng-Wen & Liu, Jin-Tan, 2005. "Wage dispersion and employment turnover in Taiwan," Economics Letters, Elsevier, vol. 88(3), pages 408-414, September.
    21. Phyllis A. Siegel & Donald C. Hambrick, 2005. "Pay Disparities Within Top Management Groups: Evidence of Harmful Effects on Performance of High-Technology Firms," Organization Science, INFORMS, vol. 16(3), pages 259-274, June.
    22. Maureen Blyler & Russell W. Coff, 2003. "Dynamic capabilities, social capital, and rent appropriation: ties that split pies," Strategic Management Journal, Wiley Blackwell, vol. 24(7), pages 677-686, July.
    23. Gastwirth, Joseph L, 1972. "The Estimation of the Lorenz Curve and Gini Index," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 306-316, August.
    24. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-267, May.
    25. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
    26. Jack A. Nickerson & Todd R. Zenger, 2008. "Envy, comparison costs, and the economic theory of the firm," Strategic Management Journal, Wiley Blackwell, vol. 29(13), pages 1429-1449, December.
    27. Seth Carnahan & Rajshree Agarwal & Benjamin A. Campbell, 2012. "Heterogeneity in turnover: the effect of relative compensation dispersion of firms on the mobility and entrepreneurship of extreme performers," Strategic Management Journal, Wiley Blackwell, vol. 33(12), pages 1411-1430, December.
    28. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    29. Aleksandra J. Kacperczyk, 2013. "Social Influence and Entrepreneurship: The Effect of University Peers on Entrepreneurial Entry," Organization Science, INFORMS, vol. 24(3), pages 664-683, June.
    30. Treble, John & van Gameren, Edwin & Bridges, Sarah & Barmby, Tim, 2001. "The internal economics of the firm: further evidence from personnel data," Labour Economics, Elsevier, vol. 8(5), pages 531-552, December.
    31. Russell W. Coff, 1999. "When Competitive Advantage Doesn't Lead to Performance: The Resource-Based View and Stakeholder Bargaining Power," Organization Science, INFORMS, vol. 10(2), pages 119-133, April.
    32. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 881-919.
    33. Donald E. Gibson & Barbara S. Lawrence, 2010. "Women's and Men's Career Referents: How Gender Composition and Comparison Level Shape Career Expectations," Organization Science, INFORMS, vol. 21(6), pages 1159-1175, December.
    34. Aleksandra Kacperczyk & Matt Marx, 2016. "Revisiting the Small-Firm Effect on Entrepreneurship: Evidence from Firm Dissolutions," Organization Science, INFORMS, vol. 27(4), pages 893-910, August.
    35. Loprest, Pamela J, 1992. "Gender Differences in Wage Growth and Job Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 526-532, May.
    36. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109, June.
    37. Davies, J. B. & Shorrocks, A. F., 1989. "Optimal grouping of income and wealth data," Journal of Econometrics, Elsevier, vol. 42(1), pages 97-108, September.
    38. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, vol. 83(5), pages 1241-1259, December.
    39. David Berri & R. Jewell, 2004. "Wage inequality and firm performance: Professional basketball's natural experiment," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(2), pages 130-139, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Claudine Gartenberg & Julie Wulf, 2020. "Competition and Pay Inequality Within and Between Firms," Management Science, INFORMS, vol. 66(12), pages 5925-5943, December.
    2. Hailiang Zou & Yunfeng Lu & Guoyou Qi, 2023. "Does Pay Disparity within Top Management Teams Lead to Bribery Activity? The Moderation of Demographic Diversity," Sustainability, MDPI, vol. 15(4), pages 1-23, February.
    3. Simeth, Markus & Mohammadi, Ali, 2022. "Losing talent by partnering up? The impact of R&D collaboration on employee mobility," Research Policy, Elsevier, vol. 51(7).
    4. Smulowitz, Stephen J. & Almandoz, Juan (“John”), 2021. "Reprint of “Predicting employee wrongdoing: The complementary effect of CEO option pay and the pay gap”," Organizational Behavior and Human Decision Processes, Elsevier, vol. 166(C), pages 104-116.
    5. Maczulskij, Terhi & Haapanen, Mika & Kauhanen, Antti & Riukula, Krista, 2021. "Dark Half: Decentralized Bargaining and Well-being at Work," ETLA Working Papers 89, The Research Institute of the Finnish Economy.
    6. Kretschmer, Tobias & Khashabi, Pooyan & Mohammadi, Ali & Raffiee, Joseph, 2020. "Cognitive Ability and Employee Mobility: Evidence from Swedish Microdata," CEPR Discussion Papers 15265, C.E.P.R. Discussion Papers.
    7. Smulowitz, Stephen J. & Almandoz, Juan, 2021. "Predicting employee wrongdoing: The complementary effect of CEO option pay and the pay gap," Organizational Behavior and Human Decision Processes, Elsevier, vol. 162(C), pages 123-135.
    8. Francesca Melillo, 2023. "Going From Entrepreneur Back to Employee: Employer Type, Task Variety, and Job Satisfaction," GREDEG Working Papers 2023-21, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    9. Eva Labro & James D. Omartian, 2023. "Managing Employee Retention Concerns: Evidence from U.S. Census Data," Working Papers 23-07, Center for Economic Studies, U.S. Census Bureau.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    2. Christian Grund & Niels Westergaard-Nielsen, 2008. "The Dispersion of Employees' Wage Increases and Firm Performance," ILR Review, Cornell University, ILR School, vol. 61(4), pages 485-501, July.
    3. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    4. Tåg, Joacim & Åstebro, Thomas & Thompson, Peter, 2016. "Hierarchies and entrepreneurship," European Economic Review, Elsevier, vol. 89(C), pages 129-147.
    5. Carr, Michael D., 2011. "Work hours and wage inequality: Evidence from the 2004 WERS," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 417-427, August.
    6. Ferreira, Priscila, 2009. "The determinants of promotions and firm separations," ISER Working Paper Series 2009-11, Institute for Social and Economic Research.
    7. Bas Klaauw & António Dias da Silva, 2011. "Wage dynamics and promotions inside and between firms," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1513-1548, October.
    8. Sun, Sophia Li & Habib, Ahsan, 2020. "Determinants and consequences of tournament incentives: A survey of the literature in accounting and finance," Research in International Business and Finance, Elsevier, vol. 54(C).
    9. Tom Coupé & Valérie Smeets & Frédéric Warzynski, 2006. "Incentives, Sorting and Productivity along the Career: Evidence from a Sample of Top Economists," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 137-167, April.
    10. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    11. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, December.
    12. Heejung Byun & Joseph Raffiee & Martin Ganco, 2019. "Discontinuities in the Value of Relational Capital: The Effects on Employee Entrepreneurship and Mobility," Organization Science, INFORMS, vol. 30(6), pages 1368-1393, November.
    13. Matthias Kräkel, 2006. "Splitting Leagues," Journal of Economics, Springer, vol. 88(1), pages 21-48, June.
    14. Catherine Haeck & Frank Verboven, 2012. "The Internal Economics of a University: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 591-626.
    15. Bertheau, Antoine, 2021. "Employer Search Behavior: Reasons for Internal Hiring," Labour Economics, Elsevier, vol. 73(C).
    16. C. Sofia Machado & Miguel Portela, 2011. "Age and opportunities for promotion," NIPE Working Papers 03/2011, NIPE - Universidade do Minho.
    17. Baptista, Rui & Lima, Francisco & Preto, Miguel Torres, 2012. "How former business owners fare in the labor market? Job assignment and earnings," European Economic Review, Elsevier, vol. 56(2), pages 263-276.
    18. Grund, Christian, 2002. "The Wage Policy of Firms: Comparative Evidence for the U.S. and Germany from Personnel Data," Bonn Econ Discussion Papers 30/2002, University of Bonn, Bonn Graduate School of Economics (BGSE).
    19. Dohmen, Thomas J., 2004. "Performance, seniority, and wages: formal salary systems and individual earnings profiles," Labour Economics, Elsevier, vol. 11(6), pages 741-763, December.
    20. Kräkel, Matthias, 2004. "Tournaments versus Piece Rates under Limited Liability," Bonn Econ Discussion Papers 8/2004, University of Bonn, Bonn Graduate School of Economics (BGSE).
    21. Aaron K. Chatterji & Rui J. P. de Figueiredo & Evan Rawley, 2016. "Learning on the Job? Employee Mobility in the Asset Management Industry," Management Science, INFORMS, vol. 62(10), pages 2804-2819, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ororsc:v:29:y:2018:i:1:p:17-38. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.