The Dispersion of Employees’ Wage Increases and Firm Performance

Christian Grund and Niels Westergård-Nielsen ()

No 1402, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: wage dispersion; firm performance; inequality; monetary incentives; wage increases; fairness (search for similar items in EconPapers)
JEL-codes: J31 L25 M52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-11
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (9)

Published - revised version published in: Industrial and Labor Relations Review, 2008, 61 (4), 485-501

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Related works:
Journal Article: The Dispersion of Employees' Wage Increases and Firm Performance (2008)
Working Paper: The Dispersion of Employees' Wage Increases and Firm Performance (2005)
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