A Study of Internal Wage Disparities Among Employees, Corporate Investment Efficiency, and Total Factor Productivity

Zhenhan Liu ()
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Zhenhan Liu: Jinan University, Jinan University-University of Birmingham Joint Institute

A chapter in Proceedings of the 2024 9th International Conference on Social Sciences and Economic Development (ICSSED 2024), 2024, pp 366-375 from Springer

Abstract: Abstract In the context of the evolving executive remuneration disclosure system in China, particularly post-financial crisis during an era of general economic downturn, the phenomena of excessively high executive pay, a disconnect between compensation and performance, and growing disparities between executive and average employee remuneration have come under scrutiny. Such disparities appear incongruent with macroeconomic trends and have spurred empirical research within the academic realm. This body of work has increasingly focused on the complex relationship between intra-firm pay differentials and corporate performance, positing that the wage gap functions as a “double-edged sword”. On one hand, it can catalyze motivation within the workforce to compete for the highest rewards, thus enhancing overall corporate efficiency. On the other, excessive internal wage disparities may engender feelings of dissatisfaction and perceived injustice among lower-tiered employees, potentially inducing behaviors that are detrimental to firm performance. Current literature predominantly employs Return on Assets (ROA) as a solitary metric for evaluating corporate performance, leaving the broader implications of pay discrepancies on Total Factor Productivity (TFP) less thoroughly explored. Consequently, this study aims to fill this gap by conducting a systematic analysis of the impact exerted by internal pay disparities on the TFP of corporations. Utilizing a dataset composed of non-financial A-share companies listed in Shanghai, Shenzhen, and Beijing stock exchanges from 2011 to 2022, this investigation reveals that widening pay gaps within firms are associated with negative behavioral effects, manifesting in diminished corporate performance. The study also investigates and elucidates potential mechanisms through which inefficient investment behavior may mediate the relationship between internal pay disparities and firms’ TFP.

Keywords: Employee wage gap; Total factor productivity of enterprises; Investment efficiency; Mediating effect; Panel regression (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-459-4_45

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DOI: 10.2991/978-94-6463-459-4_45

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