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DOES WAGE DISPERSION MAKE ALL FIRMS PRODUCTIVE?
Author(s) -
Mahy Benoît,
Rycx François,
Volral Mélanie
Publication year - 2011
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2011.00555.x
Subject(s) - wage dispersion , productivity , economics , dispersion (optics) , labour economics , wage , efficiency wage , incentive , simultaneity , panel data , personnel economics , econometrics , microeconomics , macroeconomics , labor relations , physics , classical mechanics , optics
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.