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Wage Dispersion and Firm Productivity in Different Working Environments

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  • Benoît Mahy
  • François Rycx
  • Mélanie Volral

Abstract

This paper investigates the impact of wage dispersion on firm productivity in different working environments. More precisely, it examines the interaction with: i) the skills of the workforce, using a more appropriate indicator than the standard distinction between white- and blue collar-workers, and ii) the uncertainty of the firm economic environment, which has, to our knowledge, never been explored on an empirical basis. Using detailed LEED for Belgium, we find a hump-shaped relationship between (conditional) wage dispersion and firm productivity. This result suggests that up to (beyond) a certain level of wage dispersion, the incentive effects of “tournaments” dominate (are dominated by) “fairness” considerations. Findings also show that the intensity of the relationship is stronger for highly skilled workers and in more stable environments. This might be explained by the fact that monitoring costs and production-effort elasticity are greater for highly skilled workers and that in the presence of high uncertainty workers have less control over their effort-output relation and associate higher uncertainty with more unfair environments.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/53805/1/RePEc_dul_wpaper_09-07rs.pdf
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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 09-07.RS.

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Length: 35 p.
Date of creation: 2009
Date of revision:
Publication status: Published by:
Handle: RePEc:dul:wpaper:09-07rs

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Web page: http://difusion.ulb.ac.be
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Related research

Keywords: Wage dispersion; labour productivity; working environments; personnel economics; linked employer-employee data.;

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Cited by:
  1. Kampelmann, Stephan & Rycx, Francois, 2012. "The Impact of Educational Mismatch on Firm Productivity: Evidence from Linked Panel Data," IZA Discussion Papers 7093, Institute for the Study of Labor (IZA).
  2. Mahy, Benoît & Rycx, Francois & Volral, Mélanie, 2011. "Does Wage Dispersion Make All Firms Productive?," IZA Discussion Papers 5791, Institute for the Study of Labor (IZA).

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