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Does Wage Dispersion Make All Firms Productive?

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  • Benoît Mahy
  • François Rycx
  • Mélanie Volral

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 ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 11-021.

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Length: 39 p.
Date of creation: Jun 2011
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/89486

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Keywords: Wage Dispersion; Labour Productivity; Personnel Economics; Matched Employer-Employee Panel Data;

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Cited by:
  1. Kampelmann, Stephan & Rycx, François, 2012. "The impact of educational mismatch on firm productivity: Evidence from linked panel data," Economics of Education Review, Elsevier, vol. 31(6), pages 918-931.
  2. Pfeifer, Christian, 2013. "Intra-firm Wage Compression and Cost Coverage of Training: Evidence from Linked Employer-Employee Data," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80030, Verein für Socialpolitik / German Economic Association.

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