Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/20700 
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion Papers No. 1402
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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.
Subjects: 
fairness
firm performance
inequality
monetary incentives
wage dispersion
wage increases
JEL: 
J31
M52
L25
Document Type: 
Working Paper

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