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The Dispersion of Employees’ Wage Increases and Firm Performance

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Author Info

  • Grund, Christian

    () (RWTH Aachen University)

  • Westergård-Nielsen, Niels C.

    () (Aarhus University)

Abstract

In this contribution we examine the interrelation between intra-firm wage increases and firm performance. Previous studies have focused on the dispersion of wages in order to examine for the empirical dominance of positive monetary incentives effects compared to adverse effects due to fairness considerations. We argue that the dispersion of wage increases rather than wage levels is a crucial measure for monetary incentives in firms. The larger the dispersion of wage increases the higher the amount of monetary incentives in firms. In contrast, huge wage inequality without any promotion possibilities does not induce any monetary incentives. Evidence from unique Danish linked employer employee data shows that large dispersion of wage growth within firms is generally connected with low firm performance. The results are mainly driven by white collar rather than blue collar workers.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1402.

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Length: 26 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1402

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Keywords: wage dispersion; firm performance; inequality; monetary incentives; wage increases; fairness;

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Citations

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Cited by:
  1. R Simmons & D J Berri, 2010. "Mixing the princes and the paupers: Pay and performance in the National Basketball Association," Working Papers 611523, Lancaster University Management School, Economics Department.
  2. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
  3. 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).
  4. Benoît Mahy & François Rycx & Mélanie Volral, 2011. "Does Wage Dispersion Make All Firms Productive?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(4), pages 455-489, 09.
  5. Gabriel Burdin, 2012. "Does workers’ control affect firm survival? Evidence from Uruguay," Documentos de Trabajo (working papers) 12-06, Instituto de Economia - IECON.
  6. repec:dul:wpaper:2013/89489 is not listed on IDEAS
  7. Kampkötter, Patrick & Sliwka, Dirk, 2011. "Differentiation and Performance: An Empirical Investigation on the Incentive Effects of Bonus Plans," IZA Discussion Papers 6070, Institute for the Study of Labor (IZA).
  8. Gächter, Simon & Thöni, Christian, 2010. "Social comparison and performance: Experimental evidence on the fair wage-effort hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 531-543, December.
  9. Simmons, Rob & Berri, David J., 2011. "Mixing the princes and the paupers: Pay and performance in the National Basketball Association," Labour Economics, Elsevier, vol. 18(3), pages 381-388, June.
  10. Egon Franck & Stephan Nüesch, 2007. "Wage Dispersion and Team Performance - An Empirical Panel Analysis," Working Papers 0017, University of Zurich, Center for Research in Sports Administration (CRSA).
  11. Nils Braakmann, 2008. "Intra-firm wage inequality and firm performance – First evidence from German linked employer-employee-data," Working Paper Series in Economics 77, University of Lüneburg, Institute of Economics.
  12. Burdín, Gabriel, 2012. "Does workers' control affect firm survival? Evidence from Uruguay," AICCON Working Papers 108-2012, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  13. Martin, Pardupa, 2007. "Cooperation or rivalry? Employee’s effort and appropriate knowledge distribution as key elements for maximizing the profit of the firm," MPRA Paper 26428, University Library of Munich, Germany.

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