Internal wage dispersion and firm performance : white-collar evidence

Abstract

Is internal wage dispersion good for firm productivity, or do internal wage differences break the conception of fairness and cause counterproductive behavior among workers? Contrary to previous empirical work that has found a positive relationship between internal wage dispersion and firm performance, this paper shows that such a relationship is not present using a unique linked employer–employee data set for white-collar workers in Norway over the period from 1986 to 1997. In the analysis, several different wage dispersion measures are used, of which two explicitly control for wage dispersion within and between levels in the firm’s hierarchical organization. The analysis also distinguishes between dispersion in the fixed and variable parts of wages.