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Pay Inequality and Firm Performance: Evidence from Matched Employer-Employee Data

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  • Heyman, Fredrik

    (Trade Union Institute for Economic Research)

Abstract

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.

Suggested Citation

  • Heyman, Fredrik, 2002. "Pay Inequality and Firm Performance: Evidence from Matched Employer-Employee Data," Working Paper Series 186, Trade Union Institute for Economic Research.
    • Handle: RePEc:hhs:fiefwp:0186
    as

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    File URL: http://swopec.hhs.se/fiefwp/papers/WP186.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Wage dispersion; Firm performance; Tournament models; Matched employer-employee data;
    All these keywords.

    JEL classification:

    • 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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