Intra-firm Wage Dispersion Research Articles

Access to imported intermediates and intra‐firm wage inequality

AbstractWe use Chinese firm‐level data from the World Bank Investment Climate Survey to examine the link between importing intermediates and intra‐firm wage inequality. Our results show that intermediate input importers not only have a significant wage premium but also have a greater intra‐firm wage dispersion than non‐importing firms. This pattern is robust when we control for productivity and use trade costs as the instruments. We further investigate the mechanism of how importing intermediates might contribute to both inter‐firm and intra‐firm wage inequality. Our evidence is consistent with three important channels. First, imported intermediate inputs complement skilled labour. Second, intermediates importers are more likely to use performance pay. Third, imported inputs complement innovation and employee training.

Access to Imported Intermediates and Intra-Firm Wage Inequality

We use Chinese firm-level data from the World Bank Investment Climate Survey to examine the link between importing intermediates and intra-firm wage inequality. Our results show that intermediate input importers not only have a significant wage premium but also have a greater intra-firm wage dispersion than non-importing firms. This pattern is robust when we control for productivity and use trade costs as the instruments. We further investigate the mechanism of how importing intermediates might contribute to both inter-firm and intra-firm wage inequality. Our evidence is consistent with three important channels. First, imported intermediate inputs complement skilled labour. Second, intermediates importers are more likely to use performance pay. Third, imported inputs complement innovation and employee training.

Labor Demand and Unequal Payments: Does Wage Dispersion Matter? Using German Employer-Employee Data to Analyze the Influence of Intra-Firm Wage Inequality on Labor Demand

AbstractA theoretical analysis examines the relationship between intra-firm wage dispersion and employment at establishments. The analysis relies on the absence of a theoretical consensus regarding the influence of wage dispersion on labor demand. To prove the theoretical considerations, regressions were conducted on German linked employer-employee data from the Institute for Employment Research (LIAB) for 1996 through 2008. More specifically, fractional probit models for the panel data and a fixed effects regression with a log-odds transformation of the dependent variable were used to estimate the share equations of a labor demand model, including different measures of wage dispersion. The results illustrate a negative influence of the residual wage inequality that takes into account the composition of the workforce in the establishment. In addition, an increasing wage dispersion at the lower end of the wage distribution decreases the labor demand of the establishment; however, this leads to the estimates of the overall wage dispersion becoming insignificant.

Are workers less absent when wage dispersion is small?

Purpose – The purpose of this paper is to examine the impact of wage dispersion on sickness absenteeism observed in Belgian firms. Design/methodology/approach – The authors use detailed linked employer-employee panel data for the period 1999-2006 that allow the authors to compute a conditional wage dispersion indicator following the Winter-Ebmer and Zweimüller (1999) methodology and to estimate the relationship between sickness absenteeism and wage dispersion while controlling for time-invariant workplace characteristics. Findings – The authors find a positive and hump-shaped relationship between intra-firm wage dispersion and sickness absenteeism, the turning point of this relation being extremely high. In addition, the magnitude of the influence of wage dispersion on sickness absenteeism is found to be stronger in firms employing a larger share of blue-collar workers. Practical implications – The results could therefore suggest that wage dispersion, suggestive of larger pay-for-performance mechanisms, decreases worker satisfaction and the workplace climate in general. Only a minority of workers, who are less sensitive to equity and cohesion considerations, would be less absent as pay-for-performance increases. Originality/value – While numerous approaches analyse the link between wage dispersion and firm productivity, very few studies we are aware of are devoted to the relationship between wage dispersion and sickness absenteeism. Yet, the outcomes in terms of productivity and sickness absenteeism may be different. Furthermore, the influence of wage dispersion on sickness absenteeism does not seem unambiguous from a theoretical point of view. To the authors knowledge, it is the first time that this relation is analysed with Belgian data.

Intra-firm Wage compression and Coverage of Training Costs

The author uses German linked employer-employee data to estimate the impact of intra-firm wage dispersion on the probability that establishments pay for further training. About half of all establishments in the estimation sample cover all direct and indirect training costs, which contradicts the standard human capital approach with perfect labor markets. The main finding of cross-section, panel, and instrumental variable probit estimations is that establishments with larger intra-firm wage compression are more likely to cover all direct and indirect training costs, which is consistent with theoretical considerations of the “new training literature” about imperfect labor markets.

A theory of intra-firm group design

I develop an intra-firm theory of group design and teamwork in the presence of peer effects. The purpose is to understand the interlinkages between intra-firm group formation and the extent of wage dispersion within the firm. Given a set of heterogeneous workers, the manager faces the challenge of allocating workers into endogenous groups (or teams) to maximize total profits. The optimal allocation features locational proximity between workers with similar productivity levels. I discuss the implications of this allocation on intra-firm wage outcomes. The main idea is that the wage paid to a single worker is determined by the productivity levels of the teammates as well as the worker’s own productivity. This means that team composition is critical to understanding the within-firm productivity and wage differentials. I show that intra-firm wage dispersion is more pronounced when workers are more alike within each team and more different across the teams. I provide numerical exercises designed to illustrate how the model’s predictions change as the key parameters are varied. One striking result is that a rise in the correlation between education and productivity (this can be interpreted as hiring workers with vocational education) leads to a decline in wage inequality within the firm. I also show that changes in the dispersion of worker efficiency lead to non-monotonic effects on within-firm wage inequality.

A Theory of Intra-Firm Group Design

I develop an intra-firm theory of group design and teamwork in the presence of peer effects. The purpose is to understand the interlinkages between intra-firm group formation and the extent of wage dispersion within the firm. Given a set of heterogeneous workers, the manager faces the challenge of allocating workers into endogenous groups (or teams) to maximize total profits. The optimal allocation features locational proximity between workers with similar productivity levels. I discuss the implications of this allocation on intra-firm wage outcomes. The main idea is that the wage paid to a single worker is determined by the productivity levels of the teammates as well as the worker's own productivity. This means that team composition is critical to understanding the within-firm productivity and wage differentials.I show that intra-firm wage dispersion is more pronounced when workers are more alike within each team and more different across the teams. I provide numerical exercises designed to illustrate how the model's predictions change as the key parameters are varied. One striking result is that a rise in the correlation between education and productivity (this can be interpreted as hiring workers with vocational education) leads to a decline in wage inequality within the firm. I also show that changes in the dispersion of worker efficiency lead to non-monotonic effects on within-firm wage inequality.

Multinationals, cross-border acquisitions and wage dispersion

We examine the impact of cross-border acquisitions on intra-firm wage dispersion using a detailed Swedish linked employer-employee data set including data on all firms and about 50% of the Swedish labour force with information on job-tasks and education. Foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross-border acquisitions. Hence, it is the acquisition itself rather than foreign ownership that increases wage dispersion. The positive wage effect is concentrated to CEOs and other managers, whereas other groups are either negatively affected or not affected at all.

Antecedents and Consequences of Intra-firm Wage Dispersion: Effects of Performance-Pay on Wage Dispersion and Wage Dispersion’s Effects on Employees’ Consciousness and Attitudes

Antecedents and Consequences of Intra-firm Wage Dispersion: Effects of Performance-Pay on Wage Dispersion and Wage Dispersion’s Effects on Employees’ Consciousness and Attitudes

The Dispersion of Employees' Wage Increases and Firm Performance

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.

仕事満足度に対する最適な企業内賃金格差について

Using a unique data set which comprises survey data on about 50000 Japanese union workers, we examine the relationship between employee's job satisfaction and intra-firm wage dispersion, which is defined as Gini coefficient by firm.We fmd that the Gini coefficients ranging from 0.19 to 0.21 are optimal in terms of maximizing the employee's job satisfaction.

Teamwork and Intra-Firm Wage Dispersion Among Blue-Collar Workers

Using data on a sample of manufacturing establishments in Germany, we find that the use of self-managed teams is associated with increased intra-firm wage inequality between skilled and unskilled blue-collar workers. We also show that moderating factors play an important role. While teamwork interacts positively with employer-provided further training and a production technology of the most recent vintage, it interacts negatively with the age of the establishment and the coverage by a collective bargaining agreement.

Pay inequality and firm performance: evidence from matched employer–employee data

A large matched employer–employee data set for Sweden is used to test several predictions from tournament theory. For white-collar workers a positive and significant effect of intra-firm wage dispersion on profits and average pay is found, using various measures of wage dispersion. This result is robust for controlling for firm differences in human capital and firm fixed-effects as well as for instrumenting the wage dispersion variable to take into account endogeneity of wage dispersion. Using data on around 10 000 managers, a positive and significant association between pay dispersion and profits is also found for executives. Further results include a positive relationship between market demand volatility and wage dispersion, measured as coefficient of variation in managerial pay, and a negative effect of the number of managers (contestants) on managerial pay spread. The first two results are in accordance with predictions from tournament theory, while the last one is not.

La dispersion salariale stimule-t-elle la performance d'une firme ?

Workers are used to compare their wages with those of their co-workers. As a result, it is argued that the dispersion of wages within a firm has a significant impact on the individual workers’ productivity and thus on the average firm performance. However, there is no consensus about the sign and shape of the relationship between wage dispersion and firm performance. On the one hand, the “tournament” models (e.g., Lazear and Rosen, 1981) stress the positive influence of wage inequality within a firm on the workers’ effort. These models suggest the implementation of a differentiated prize structure and to award the largest prize to the most productive worker. On the other hand, other theories argue for some degree of wage compression within a firm by emphasising the importance of fairness and cooperation among the workforce (e.g., Akerlof and Yellen, 1990 ; Levine, 1991). The aim of this paper is to provide a critical summary of the literature regarding the interaction between intra-firm wage dispersion and firm performance. Particular attention is devoted to the empirical results that have been obtained for the Belgian economy.

Intra‐Firm Wage Dispersion and Firm Performance: Evidence from Linked Employer‐Employee Data

SUMMARYThis paper examines the relationship between intra‐firm wage dispersion and firm performance in large Belgian firms using a unique matched employer‐employee data set. On the basis of the Winter‐Ebmer and Zweimüller's (1999) methodology, we find a positive and significant relationship between intra‐firm wage dispersion and profits per capita, even when controlling for individual and firm characteristics and addressing potential simultaneity problems. Results also suggest that the intensity of this relationship is stronger for blue‐collar workers and within firms with a high degree of monitoring. These findings are more in line with the ‘tournament’ models than with the ‘fairness, morale and cohesiveness’ models.

Intra-firm Wage Dispersion and Firm Performance

Personnel economics has put forward conflicting arguments concerning the impact of increased wage dispersion within a firm on the productivity of its workers. Besides giving more incentives, bigger wage differentials might also give rise to less co-operation and more politicking amongst workers resulting in worse outcomes. We try to shed light on these issues using panel data for Austrian firms. As indicators for firm performance we use standardized wages. For white-collar wages the following picture emerges: more dispersion leads to higher earnings up to some point where the relation changes its direction. For blue-collar wages we find a positive association between dispersion and standardized wages between firms, but no relation within firms over time.

Intra-Firm Wage Dispersion and Firm Performance

Personnel economics has suggested conflicting arguments about the impact of increased wage dispersion within firms on workers’ productivity and firm performance. Besides giving more advancement incentives, bigger wage differentials might also give rise to less cooperation and more politics between workers resulting in worse outcomes. We try to answer these questions using panel data for Austrian firms. As indicators for firm performance we use employment growth and standardized wages. For white-collar wages the following picture emerges: more dispersion leads to higher earnings up to some point where the relation changes direction. For blue-collar wages we find a positive association between dispersion and standardized wages between firms, but no relation within firms over time. For employment growth the results are ambiguous.