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Does Wage Dispersion Make All Firms Productive?

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Author Info

  • Mahy, Benoît

    () (University of Mons-Hainaut)

  • Rycx, Francois

    () (Free University of Brussels)

  • Volral, Mélanie

    () (University of Mons-Hainaut)

Abstract

This article puts the relationship between wage dispersion and firm productivity to an updated test, taking advantage of access to detailed Belgian linked employer-employee panel data. Controlling for simultaneity issues, time-invariant workplace characteristics and dynamics in the adjustment process of productivity, empirical results reveal the existence of a positive impact from conditional intra-firm wage dispersion to firm productivity (measured by the average value added per hour worked), which however decreases for higher dispersion levels. Findings thus suggest that the incentive effect of wage dispersion, predicted for instance by the 'tournament' model, dominates 'fairness' and/or 'sabotage' considerations. Further results reveal that the influence of wage dispersion on firm productivity is stronger among firms with a larger proportion of highly skilled workers but does not depend on whether wages are collectively renegotiated at the firm level.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5791.

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Length: 40 pages
Date of creation: Jun 2011
Date of revision:
Publication status: published in: Scottish Journal of Political Economy, 2011, 58 (4), 455-489
Handle: RePEc:iza:izadps:dp5791

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Related research

Keywords: labour productivity; matched employer-employee panel data; personnel economics; wage dispersion;

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References

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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).

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