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Department of Economics, Aarhus School of Business, University of Aarhus Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus

No 01-2:
Pay Spread and Skewness, Employee Effort and Firm Productivity

Paul Bingley () and Tor Eriksson ()

Abstract: We test predictions from theories of tournament, fairness and tastes for skewness

about the effects of pay spread and skewness on employee effort and firm

productivity. The data come from the population of 6,501 medium-to-large sized

Danish private sector firms matched with all their employees during 1992-95.

Potential simultaneity problems are addressed by instrumental variables provided by

institutional variation in the income tax system. Differences in firm productivity

effects between occupational groups and types of firms give support to the theories of

fairness, tournaments and tastes for skewness. Only individual effort effects support

tournament theory alone.

Keywords: Tournaments; Fairness; Skewness; Pay distribution; Matched employeremployee data; (follow links to similar papers)

JEL-Codes: J31; J41; (follow links to similar papers)

25 pages, January 1, 2001

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