Dispersion of Employees' Wage Increases and Firm Performance

Posted: 2 Mar 2011

See all articles by Christian Grund

Christian Grund

RWTH Aachen University - School of Economics and Business Administration; IZA Institute of Labor Economics

Niels Westergaard-Nielsen

Copenhagen Business School; IZA Institute of Labor Economics

Date Written: July 1, 2008

Abstract

Previous studies examining intra-firm wage dispersion and firm performance have focused on wage levels. The authors of this study argue that for purposes of comparing wage dispersion’s positive incentive effects with its adverse morale effects, the dispersion of wage increases is more revealing than the dispersion of wage levels. It is reasonable to expect greater dispersion of wage increases to be associated with higher monetary incentives, but also with increased perceptions of unfairness. The authors’ analysis of linked employer-employee data from Denmark for the years 1992-97 shows that the dispersion of wage growth within firms generally had a negative association with firm performance. The results are robust across industries and categories of firm size, but are mainly driven by white-collar rather than blue-collar workers.

Keywords: wage increase dispersion, firm performance

JEL Classification: J31, L25

Suggested Citation

Grund, Christian and Westergaard-Nielsen, Niels, Dispersion of Employees' Wage Increases and Firm Performance (July 1, 2008). Industrial and Labor Relations Review, Vol. 61, No. 4, 2008. Available at SSRN: https://ssrn.com/abstract=1773037

Christian Grund (Contact Author)

RWTH Aachen University - School of Economics and Business Administration ( email )

Aachen
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Niels Westergaard-Nielsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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