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The Dispersion of Employees' Wage Increases and Firm Performance

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  • Christian Grund
  • Niels Westergaard-Nielsen

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 robust across industries and categories of firm size, but are mainly driven by white-collar rather than blue-collar workers.

Suggested Citation

  • 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.
    • Handle: RePEc:sae:ilrrev:v:61:y:2008:i:4:p:485-501
    DOI: 10.1177/001979390806100403
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    More about this item

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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