Does Wage Dispersion Make All Firms Productive?

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

No 5791, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This article puts the relationship between wage dispersion and firm productivity to an updated test, taking advantage of access to detailed Belgian linked employer-employee panel data. Controlling for simultaneity issues, time-invariant workplace characteristics and dynamics in the adjustment process of productivity, empirical results reveal the existence of a positive impact from conditional intra-firm wage dispersion to firm productivity (measured by the average value added per hour worked), which however decreases for higher dispersion levels. Findings thus suggest that the incentive effect of wage dispersion, predicted for instance by the 'tournament' model, dominates 'fairness' and/or 'sabotage' considerations. Further results reveal that the influence of wage dispersion on firm productivity is stronger among firms with a larger proportion of highly skilled workers but does not depend on whether wages are collectively renegotiated at the firm level.

Keywords: labour productivity; matched employer-employee panel data; personnel economics; wage dispersion (search for similar items in EconPapers)
JEL-codes: J24 J31 M5 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-06
New Economics Papers: this item is included in nep-bec, nep-eff, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published - published in: Scottish Journal of Political Economy, 2011, 58 (4), 455-489

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Related works:
Journal Article: DOES WAGE DISPERSION MAKE ALL FIRMS PRODUCTIVE? (2011)
Working Paper: Does Wage Dispersion Make All Firms Productive? (2011)
Working Paper: Does Wage Dispersion Make All Firms Productive?
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