Using an extensive data set on Finnish workers during the years 1990–2002, we analyze the relation between dispersion of wages within plants and labor productivity. We find a positive and significant relation between dispersion of wages within plant and average sales per worker. This relation is quadratic when dispersion is conditioned on workers’ observable characteristics. We also find positive and significant relation between unconditional dispersion of wages within plant and value added per hours worked, while we find a non-significant relation between conditional wage dispersion and valued added per hours worked. Results indicate that the incentive effect of wage dispersion dominates fairness or sabotage considerations.
We would like to thank three anonymous referees and the editors (Solomon Polachek and Konstantinos Tatsiramos) for many useful comments and suggestions on an earlier version of this chapter. We are also grateful to Pekka Ilmakunnas and Statistics Finland for giving access to the data. Financial support from the Yrjo Jahsson Foundation is acknowledged.
Arranz-Aperte, L. (2014), "The Impact of Wage Dispersion on Labor Productivity: Evidence from Finnish workers", New Analyses of Worker Well-Being (Research in Labor Economics, Vol. 38), Emerald Group Publishing Limited, Bingley, pp. 77-103. https://doi.org/10.1108/S0147-9121(2013)0000038003
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