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Title:The Dispersion of Employees? Wage Increases and Firm Performance PDF Logo
Authors:Grund, Christian
Westergård-Nielsen, Niels Christian
Issue Date:2005
Series/Report no.:Bonn econ discussion papers 2005,3
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 incentive 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 increases
Wage Dispersion
JEL:M52
J31
L25
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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