Wage Dispersion and Firm Productivity in Different Working Environments

Benoît Mahy (), Francois Rycx and Mélanie Volral
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Benoît Mahy: University of Mons

No 4044, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper 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 LEED 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” 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.

Keywords: linked employer-employee data; personnel economics; working environments; labour productivity; wage dispersion (search for similar items in EconPapers)
JEL-codes: J24 J31 M52 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2009-02
New Economics Papers: this item is included in nep-bec, nep-eff and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: British Journal of Industrial Relations, 2011, 49 (3), 460 - 485

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Related works:
Journal Article: Wage Dispersion and Firm Productivity in Different Working Environments (2011)
Working Paper: Wage Dispersion and Firm Productivity in Different Working Environments (2011)
Working Paper: Wage Dispersion and Firm Productivity in Different Working Environments (2009)
Working Paper: Wage Dispersion and Firm Productivity in Different Working Environments (2009)
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