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Cohesiveness, Productivity, and Wage Dispersion

  • Levine, David

When work groups support the goals of the firm, firms will want to narrow wage dispersion in order to increase group cohesiveness and productivity. This narrowing of wage differentials has several implications: (1) Firms will pay wages that vary less than marginal productivity; (2) Firms that must pay the high end of their wage distribution a particularly high wage will pay all workers particularly high wages; (3) The market ignores the rent that egalitarian wages provide to low-wage workers, and the rent will be under-provided in equilibrium. At the margin, increasing the number of workers in cohesive firms and/or increasing wages for the low end of the wage distribution will increase the total amount of rents, raising national output.

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Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt8kd4d0p4.

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Date of creation: 01 Jan 1989
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Handle: RePEc:cdl:indrel:qt8kd4d0p4
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  1. Andrew Weiss, 1987. "Incentives and Worker Behavior: Some Evidence," NBER Working Papers 2194, National Bureau of Economic Research, Inc.
  2. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  3. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
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