Benoît Mahy is at the University of Mons — UMONS, Warocqué Research Center (CRW) and Department of Applied Economics (DULBEA). François Rycx is at the Université Libre de Bruxelles (ULB), Centre Emile Bernheim (CEB), Department of Applied Economics (DULBEA) and IZA-Bonn. Mélanie Volral is at the University of Mons — UMONS and Warocqué Research Center (CRW).
Wage Dispersion and Firm Productivity in Different Working Environments
Article first published online: 23 FEB 2010
© Blackwell Publishing Ltd/London School of Economics 2010
British Journal of Industrial Relations
Volume 49, Issue 3, pages 460–485, September 2011
How to Cite
Mahy, B., Rycx, F. and Volral, M. (2011), Wage Dispersion and Firm Productivity in Different Working Environments. British Journal of Industrial Relations, 49: 460–485. doi: 10.1111/j.1467-8543.2009.00775.x
- Issue published online: 23 FEB 2010
- Article first published online: 23 FEB 2010
- Final version accepted on 26 October 2009.
This article investigates the impact of wage dispersion on firm productivity in different working environments. More precisely, it examines the interaction with: (i) the skills of the workforce, using a more appropriate indicator than the standard distinction between white- and blue-collar workers, and (ii) the uncertainty of the firm economic environment, which has, to our knowledge, never been explored on an empirical basis. Using detailed cross-sectional linked employer–employee data for Belgium, we find a hump-shaped relationship between (conditional) wage dispersion and firm productivity. This result suggests that up to (beyond) a certain level of wage dispersion, the incentive effects of ‘tournaments’ dominate (are dominated by) ‘fairness’ and/or ‘sabotage’ considerations. Findings also show that the intensity of the relationship is stronger for highly skilled workers and in more stable environments. This might be explained by the fact that monitoring costs and production–effort elasticity are greater for highly skilled workers, and that in the presence of high uncertainty, workers have less control over their effort–output relation, and associate higher uncertainty with more unfair environments.