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Wage Dispersion and Firm Productivity in Different Working Environments

  • Benoît Mahy
  • François Rycx
  • Mélanie Volral

This paper investigates the impact of wage dispersion on firm productivity in different working environments. More precisely, it examines the interaction with: i) the skills of the workforce, using a more appropriate indicator than the standard distinction between white- and blue collar-workers, and ii) the uncertainty of the firm economic environment, which has, to our knowledge, never been explored on an empirical basis. Using detailed LEED for Belgium, we find a hump-shaped relationship between (conditional) wage dispersion and firm productivity. This result suggests that up to (beyond) a certain level of wage dispersion, the incentive effects of “tournaments” dominate (are dominated by) “fairness” considerations. Findings also show that the intensity of the relationship is stronger for highly skilled workers and in more stable environments. This might be explained by the fact that monitoring costs and production-effort elasticity are greater for highly skilled workers and that in the presence of high uncertainty workers have less control over their effort-output relation and associate higher uncertainty with more unfair environments.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/53805/1/RePEc_dul_wpaper_09-07rs.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 09-07.RS.

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Length: 35 p.
Date of creation: 2009
Date of revision:
Publication status: Published by:
Handle: RePEc:dul:wpaper:09-07rs
Contact details of provider: Web page: http://difusion.ulb.ac.be

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  1. Foss, Nicolai J. & Laursen, Keld, 2005. "Performance pay, delegation and multitasking under uncertainty and innovativeness: An empirical investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 246-276, October.
  2. Thierry Lallemand & Robert Plasman & François Rycx, 2009. "Wage structure and firm productivity in Belgium," ULB Institutional Repository 2013/8733, ULB -- Universite Libre de Bruxelles.
  3. 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.
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  16. Uwe Jirjahn & Kornelius Kraft, 2007. "Intra-firm Wage Dispersion and Firm Performance - Is There a Uniform Relationship?," Kyklos, Wiley Blackwell, vol. 60(2), pages 231-253, 05.
  17. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
  18. 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.
  19. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April.
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