Intra‐firm Wage Dispersion and Firm Performance – Is There a Uniform Relationship?

SUMMARY Empirical studies examining the impact of intra‐firm wage dispersion on firm performance report extremely mixed results. Yet, almost all of the studies implicitly assume that there is a uniform relationship between wage dispersion and firm performance across all types of firms. In contrast, we argue that the effects of wage dispersion depend on the industrial relations regime and the type of incentive scheme employed. Using data on a sample of manufacturing establishments in Germany, our findings confirm that wage dispersion interacts with internal promotions, individual and group piece rates, works council presence and collective bargaining coverage. This strongly supports the notion that moderating factors play an important role in the relationship between intra‐firm wage dispersion and productivity.