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The effect of wage dispersion on team outcome and the way team outcome is produced

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  • Egon Franck
  • Stephan Nuesch

Abstract

The impact of intra-team pay dispersion on team productivity is a highly discussed issue. On the one hand, wage differentials provide incentives for higher employee effort. On the other hand, pay inequality may reduce team cohesiveness and increase feelings of relative deprivation leading to lower performance. Analysing nonlinear effects of wage dispersion in professional soccer, we find empirical evidence that team performance is strongest when there is either very high or very low wage inequality. Medium levels produce the weakest team performance. In addition, we show that the pay structure affects the team's playing style even after controlling for team and coach heterogeneity. We discuss the theoretical and managerial implications as well as the limits of generalization.

Suggested Citation

  • Egon Franck & Stephan Nuesch, 2011. "The effect of wage dispersion on team outcome and the way team outcome is produced," Applied Economics, Taylor & Francis Journals, vol. 43(23), pages 3037-3049.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:23:p:3037-3049
    DOI: 10.1080/00036840903427224
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    References listed on IDEAS

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    1. Christian Grund & Niels Westergaard-Nielsen, 2008. "The Dispersion of Employees' Wage Increases and Firm Performance," ILR Review, Cornell University, ILR School, vol. 61(4), pages 485-501, July.
    2. Bingley, P. & Eriksson, T, 2001. "Pay Spread and Skewness. Employee Effort and Firm Productivity," Papers 01-2, Aarhus School of Business - Department of Economics.
    3. Franck, Egon & Nüesch, Stephan, 2010. "The effect of talent disparity on team productivity in soccer," Journal of Economic Psychology, Elsevier, vol. 31(2), pages 218-229, April.
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