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Pay Inequality and Firm Performance: Evidence from Matched Employer-Employee Data

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Author Info
Heyman, Fredrik (Trade Union Institute for Economic Research)

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Abstract

This paper uses a large matched employer-employee data set for Sweden to analyse several predictions from tournament theory. For white-collar workers, a positive effect of intra-firm wage dispersion on profits and average pay is found. This result is robust to controls for human capital characteristics and firm fixed-effects as well as to instrumenting the wage dispersion variable. Using data on around 10,000 managers, the same relationships are also found for executives. Further results include a positive relationship between market demand volatility and wage dispersion for managers, and a negative effect of the number of managers (contestants) on managerial pay spread.

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Publisher Info
Paper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 186.

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Length: 38 pages
Date of creation: 19 Dec 2002
Date of revision:
Handle: RePEc:hhs:fiefwp:0186

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Related research
Keywords: Wage dispersion; Firm performance; Tournament models; Matched employer-employee data;

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
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. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, Göteborg University, Department of Economics. [Downloadable!]
    Other versions:
  2. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September. [Downloadable!] (restricted)
    Other versions:
  4. James S. Ang & Shmuel Hauser & Beni Lauterbach, 1998. "Contestability and Pay Differential in the Executive Suites," European Financial Management, Blackwell Publishing Ltd, vol. 4(3), pages 335-360. [Downloadable!] (restricted)
  5. Winter-Ebmer, Rudolf & Zweimüller, Josef, 1997. "Intra-firm Wage Dispersion and Firm Performance," CEPR Discussion Papers 1621, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Levine, David I., 1991. "Cohesiveness, productivity, and wage dispersion," Journal of Economic Behavior & Organization, Elsevier, vol. 15(2), pages 237-255, March. [Downloadable!] (restricted)
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  7. Lazear, E.P., 1990. "The Job as a Concept," Papers e-90-24, Stanford - Hoover Institution.
  8. Moene, Karl Ove & Wallerstein, Michael, 1997. "Pay Inequality," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 403-30, July. [Downloadable!] (restricted)
  9. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April. [Downloadable!] (restricted)
  10. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July. [Downloadable!]
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  11. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June. [Downloadable!] (restricted)
  12. Bingley, P. & Eriksson, T, 2001. "Pay Spread and Skewness. Employee Effort and Firm Productivity," Papers 01-2, Aarhus School of Business - Department of Economics.
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  13. Jonathan S. Leonard, 1990. "Executive pay and firm performance," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 13-29, February.
  14. 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. [Downloadable!] (restricted)
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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. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research. [Downloadable!]
  2. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research. [Downloadable!]
  3. Luiz A. Esteves & Pedro S. Martins, 2008. "Is firm performance driven by fairness or tournaments? Evidence from Brazilian matched data," Working Papers 16, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research. [Downloadable!]
  4. Selén, Jan & Ståhlberg, Ann-Charlotte, 2004. "Wage and Compensation Inequality — How Different?," Working Paper Series 197, Trade Union Institute for Economic Research. [Downloadable!]
  5. Thierry Lallemand & Robert Plasman & François Rycx, 2005. "Wage structure and firm productivity in Belgium," Working Papers DULBEA 05-14.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  6. Lundborg, Per, 2007. "Which Wage Dispersion Matters to Firms' Performance?," Working Paper Series 12/2007, Swedish Institute for Social Research. [Downloadable!]
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