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Is firm performance driven by fairness or tournaments? Evidence from Brazilian matched data

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  • Luiz A. Esteves
  • Pedro S. Martins

Abstract

Theory and evidence are ambiguous about the effect of within-firm wage inequality on firm performance. This paper tests empirically this relationship drawing on detailed Brazilian matched employer-employee panel data, considering alternative measures of inequality and performance and different estimation methods. We find overwhelming evidence of a positive relationship between wage dispersion and firm performance when using cross-section analysis, especially in manufacturing. However, this relationship is weakened when controlling for firm time-invariant heterogeneity.

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File URL: http://webspace.qmul.ac.uk/pmartins/CGRWP16.pdf
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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 16.

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Date of creation: Jul 2008
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Handle: RePEc:cgs:wpaper:16

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Keywords: Tournaments; Incentives; Equity; Wage Dispersion;

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  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 841-64, October.
  2. Fredrik Heyman, 2005. "Pay inequality and firm performance: evidence from matched employer-employee data," Applied Economics, Taylor and Francis Journals, vol. 37(11), pages 1313-1327.
  3. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  4. Hibbs, Douglas A, Jr & Locking, Hakan, 2000. "Wage Dispersion and Productive Efficiency: Evidence for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 755-82, October.
  5. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  6. Thierry Lallemand & Robert Plasman & François Rycx, 2009. "Wage structure and firm productivity in Belgium," ULB Institutional Repository 2013/8733, ULB -- Universite Libre de Bruxelles.
  7. Martins, Pedro S., 2008. "Dispersion in wage premiums and firm performance," Economics Letters, Elsevier, vol. 101(1), pages 63-65, October.
  8. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  9. Winter-Ebmer, Rudolf & Zweimuller, Josef, 1999. "Intra-Firm Wage Dispersion and Firm Performance," Kyklos, Wiley Blackwell, vol. 52(4), pages 555-72.
  10. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-28, October.
  11. Pedro S. Martins & Luiz Alberto Esteves, 2006. "Is There Rent Sharing In Developing Countries? Matched-Panel Evidence From Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 158, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  12. Martins, Pedro S. & Pereira, Pedro T., 2004. "Does education reduce wage inequality? Quantile regression evidence from 16 countries," Labour Economics, Elsevier, vol. 11(3), pages 355-371, June.
  13. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
  14. François Rycx & Thierry Lallemand & Robert Plasman, 2004. "Intra-firm wage dispersion and firm performance: evidence from linked employer-employee data," ULB Institutional Repository 2013/781, ULB -- Universite Libre de Bruxelles.
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