The Dispersion of Employees’ Wage Increases and Firm Performance

Christian Grund () and Niels Westergaard-Nielsen ()

No 1402, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: In this contribution we examine the interrelation between intra-firm wage increases and firm performance. Previous studies have focused on the dispersion of wages in order to examine for the empirical dominance of positive monetary incentives effects compared to adverse effects due to fairness considerations. We argue that the dispersion of wage increases rather than wage levels is a crucial measure for monetary incentives in firms. The larger the dispersion of wage increases the higher the amount of monetary incentives in firms. In contrast, huge wage inequality without any promotion possibilities does not induce any monetary incentives. Evidence from unique Danish linked employer employee data shows that large dispersion of wage growth within firms is generally connected with low firm performance. The results are mainly driven by white collar rather than blue collar workers.

Keywords: fairness; firm performance; inequality; monetary incentives; wage dispersion; wage increases (search for similar items in EconPapers)
JEL-codes: M52 J31 L25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2004-11
View list of references View citations in EconPapers

Downloads: (external link)
ftp://repec.iza.org/RePEc/Discussionpaper/dp1402.pdf (application/pdf)

Related works:
Working Paper: The Dispersion of Employees' Wage Increases and Firm Performance (2005)
Journal Article: The Dispersion of Employees' Wage Increases and Firm Performance (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp1402

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA)
Address: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Contact information at EDIRC.
Series data maintained by Mark Fallak ().