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Intra-firm wage dispersion and fîrm performance: a review and empirical tests on Belgian data

Author

Listed:
  • Thierry Lallemand
  • Robert Plasman
  • François Rycx

Abstract

The objective of this paper is twofold. First, we survey the theoretical and empirical literature regarding the impact of intra-firm wage dispersion on firm performance. Next, we examine the nature of this relationship in the Belgian private sector, using a unique combination of two large-scale data sets (i.e. the 1995 "Structure of Earnings Survey" and "Structure of Business Survey"). We measure firm performance both in financial and productivity terms. Moreover, three unconditional indicators are used to estimate intrafirm wage dispersion. Empirical results support the existence of a significant and positive relationship between wage inequality and firm performance, even when controlling for the composition of the workforce and firm characteristics. These findings are more in line with the "tournament" models (Lazear and Rosen, 1981) than with the "fairness, morale and cohesiveness" models (Akerlof and Yellen, 1990; Levine, 1991). Results also suggest that the magnitude of the elasticity between wage dispersion and firm performance depends upon the sectoral affiliation of the firm and the composition of the workforce.

Suggested Citation

  • Thierry Lallemand & Robert Plasman & François Rycx, 2003. "Intra-firm wage dispersion and fîrm performance: a review and empirical tests on Belgian data," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 46(4), pages 5-30.
    • Handle: RePEc:bxr:bxrceb:y:2003:v:46:i:4:p:5-29
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    Citations

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    Cited by:

    1. Christian Pfeifer & Joachim Wagner, 2012. "Age and gender composition of the workforce, productivity and profits: Evidence from a new type of data for German enterprises," Working Paper Series in Economics 232, University of Lüneburg, Institute of Economics.
    2. Thierry Lallemand & Robert Plasman & François Rycx, 2005. "La dispersion salariale stimule-t-elle la performance d'une firme ?," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 63-70.
    3. Christian Pfeifer & Joachim Wagner, 2014. "Age and gender effects of workforce composition on productivity and profits: Evidence from a new type of data for German enterprises," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(1), March.

    More about this item

    Keywords

    Wage dispersion; Personnel economies; Matched employer-employee data;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • 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

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