Pay Inequality and Firm Performance: Evidence from Matched Employer-Employee Data
This paper uses a large matched employer-employee data set for Sweden to analyse several predictions from tournament theory. For white-collar workers, a positive effect of intra-firm wage dispersion on profits and average pay is found. This result is robust to controls for human capital characteristics and firm fixed-effects as well as to instrumenting the wage dispersion variable. Using data on around 10,000 managers, the same relationships are also found for executives. Further results include a positive relationship between market demand volatility and wage dispersion for managers, and a negative effect of the number of managers (contestants) on managerial pay spread.
|Date of creation:||19 Dec 2002|
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01-2, University of Aarhus, Aarhus School of Business, Department of Economics.
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- James S. Ang & Shmuel Hauser & Beni Lauterbach, 1998. "Contestability and Pay Differential in the Executive Suites," European Financial Management, European Financial Management Association, vol. 4(3), pages 335-360.
- Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
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