Fredrik Heyman: Trade Union Institute for Economic Research, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden
Abstract: This paper uses a large matched employer-employee data set for Sweden to analyse several predictions from tournament theory. For white-collar workers, a positive effect of intra-firm wage dispersion on profits and average pay is found. This result is robust to controls for human capital characteristics and firm fixed-effects as well as to instrumenting the wage dispersion variable. Using data on around 10,000 managers, the same relationships are also found for executives. Further results include a positive relationship between market demand volatility and wage dispersion for managers, and a negative effect of the number of managers (contestants) on managerial pay spread.
38 pages, December 19, 2002
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