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Wage Dispersion and Firm Productivity in Different Working Environments

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  • Benoît Mahy
  • François Rycx
  • Mélanie Volral

Abstract

This article 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 cross-sectional linked employer-employee data 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' and/or 'sabotage' 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. © Blackwell Publishing Ltd/London School of Economics 2010.

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  • Benoît Mahy & François Rycx & Mélanie Volral, 2011. "Wage Dispersion and Firm Productivity in Different Working Environments," ULB Institutional Repository 2013/169520, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/169520 Note: SCOPUS: ar.j
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    1. repec:bla:etrans:v:25:y:2017:i:4:p:723-758 is not listed on IDEAS
    2. Kampelmann, Stephan & Mahy, Benoît & Rycx, Francois & Vermeylen, Guillaume, 2016. "Who Is Your Perfect Match? Educational Norms, Educational Mismatch and Firm Profitability," IZA Discussion Papers 10399, Institute for the Study of Labor (IZA).
    3. Kampelmann, Stephan & Rycx, François, 2012. "The impact of educational mismatch on firm productivity: Evidence from linked panel data," Economics of Education Review, Elsevier, vol. 31(6), pages 918-931.
    4. François Rycx & Yves Saks & Ilan Tojerow, 2015. "Does Education Raise Productivity and Wages Equally? The Moderating Roles of Age, Gender and Industry," Working Paper Research 281, National Bank of Belgium.
    5. Carolina Laureti, 2015. "The Debt Puzzle in Dhaka’s Slums: Do Poor People Co-hold for Liquidity Needs?," Working Papers CEB 15-021, ULB -- Universite Libre de Bruxelles.
    6. Benoît Mahy & François Rycx & Guillaume Vermeylen, 2015. "Educational Mismatch and Firm Productivity: Do Skills, Technology and Uncertainty Matter?," De Economist, Springer, pages 233-262.
    7. repec:spr:jknowl:v:8:y:2017:i:2:d:10.1007_s13132-016-0441-1 is not listed on IDEAS
    8. Benoît Mahy & François Rycx & Mélanie Volral, 2011. "Does Wage Dispersion Make All Firms Productive?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(4), pages 455-489, September.
    9. Carolina Laureti, 2017. "Why do Poor People Co-hold Debt and Liquid Savings?," Working Papers CEB 17-007, ULB -- Universite Libre de Bruxelles.
    10. Dai, Yunhao & Kong, Dongmin & Xu, Jin, 2017. "Does fairness breed efficiency? Pay gap and firm productivity in China," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 406-422.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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