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Is firm performance driven by fairness or tournaments? Evidence from Brazilian matched data

  • Luiz A. Esteves
  • Pedro S. Martins

Theory and evidence are ambiguous about the effect of within-firm wage inequality on firm performance. This paper tests empirically this relationship drawing on detailed Brazilian matched employer-employee panel data, considering alternative measures of inequality and performance and different estimation methods. We find overwhelming evidence of a positive relationship between wage dispersion and firm performance when using cross-section analysis, especially in manufacturing. However, this relationship is weakened when controlling for firm time-invariant heterogeneity.

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Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 16.

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Date of creation: Jul 2008
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Handle: RePEc:cgs:wpaper:16
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  1. Thierry Lallemand & Robert Plasman & François Rycx, 2004. "Intra-Firm Wage Dispersion and Firm Performance: Evidence from Linked Employer-Employee Data," Kyklos, Wiley Blackwell, vol. 57(4), pages 533-558, November.
  2. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, University of Gothenburg, Department of Economics.
  3. Paul R. Milgrom., 1987. "Employment Contracts, Influence Activities and Efficient Organization Design," Economics Working Papers 8741, University of California at Berkeley.
  4. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
  5. Fredrik Heyman, 2005. "Pay inequality and firm performance: evidence from matched employer-employee data," Applied Economics, Taylor & Francis Journals, vol. 37(11), pages 1313-1327.
  6. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  7. Robert Plasman & Thierry Lallemand & François Rycx, 2005. "Wage structure and firm productivity in Belgium," ULB Institutional Repository 2013/8058, ULB -- Universite Libre de Bruxelles.
  8. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-28, October.
  9. Pedro S. Martins, 2008. "Dispersion in Wage Premiums and Firm Performance," Working Papers 8, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  10. Rudolf Winter-Ebmer & Josef Zweimueller, . "Intra-firm Wage Dispersion and Firm Performance," IEW - Working Papers 008, Institute for Empirical Research in Economics - University of Zurich.
  11. Martins, Pedro S. & Esteves, Luiz A., 2006. "Is There Rent Sharing in Developing Countries? Matched-Panel Evidence from Brazil," IZA Discussion Papers 2317, Institute for the Study of Labor (IZA).
  12. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  13. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  14. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
  15. repec:sae:ilrrev:v:43:y:1990:i:3:p:13-29 is not listed on IDEAS
  16. Martins, Pedro S. & Pereira, Pedro T., 2004. "Does education reduce wage inequality? Quantile regression evidence from 16 countries," Labour Economics, Elsevier, vol. 11(3), pages 355-371, June.
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