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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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  • 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, September.
    • Handle: RePEc:bla:scotjp:v:58:y:2011:i:4:p:455-489
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    2. 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.
    3. François Rycx & Yves Saks & Ilan Tojerow, 2015. "Does Education Raise Productivity and Wages Equally? The Moderating Roles of Age, Gender and Industry," Working Paper Research 281, National Bank of Belgium.
    4. Jens Mohrenweiser & Christian Pfeifer, 2023. "Wage Structures, Fairness Perceptions, and Job Satisfaction: Evidence from Linked Employer-Employee Data," Journal of Happiness Studies, Springer, vol. 24(7), pages 2291-2308, October.
    5. Dai, Yunhao & Kong, Dongmin & Xu, Jin, 2017. "Does fairness breed efficiency? Pay gap and firm productivity in China," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 406-422.
    6. Bias, Daniel & Chen, Lin & Lochner, Benjamin & Schmid, Thomas, 2020. "Measuring workers' financial incentives," FAU Discussion Papers in Economics 07/2020, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    7. Dalenda Ben Ahmed, 2020. "Behavioral effects of employee stock ownership: French case," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 10(2), pages 53-64, February.
    8. Mohrenweiser, Jens & Pfeifer, Christian, 2019. "Firms' Wage Structures, Workers' Fairness Perceptions, Job Satisfaction and Turnover Intentions: Evidence from Linked Employer-Employee Data," IZA Discussion Papers 12821, Institute of Labor Economics (IZA).
    9. Stoyanov Andrey & Zubanov Nick, 2022. "Skill complementarity in production technology: New empirical evidence and implications," German Economic Review, De Gruyter, vol. 23(2), pages 233-274, May.
    10. Damian Mowczan & Jan Jacek Sztaudynger, 2022. "Związek zróżnicowania płac z produktywnością w ujęciu terytorialnym," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 60-73.
    11. Arnd Kölling, 2014. "Labor Demand and Unequal Payment: Does Wage Inequality matter? Analyzing the Influence of Intra-firm Wage Dispersion on Labor Demand with German Employer-Employee Data," Working Paper Series in Economics 326, University of Lüneburg, Institute of Economics.

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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