Scandinavian Working Papers in Economics

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

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

Paul Bingley () and Tor Eriksson ()
Additional contact information
Paul Bingley: National Center for Register-based Research, Postal: University of Aarhus, TÃ¥singegade 1, 8000 Aarhus C, Denmark
Tor Eriksson: Department of Economics, Aarhus School of Business, Postal: Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

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

JEL-codes: J31; J41

25 pages, January 1, 2001

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01-2_te.pdf PDF-file 

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