Vertical and Horizontal Wage Dispersion and Mobility Outcomes: Evidence from the Swedish Microdata

Abstract

We leverage this distinction between vertical and horizontal wage dispersion to identify the mobility-reducing effect of unequal pay and to separate it cleanly from the mobility-inducing effect, well-established in the literature. 2 We propose that pay dispersion suppresses inter-firm mobility when wage differentials are vertical. These differences in pay are likely to reduce inter-firm mobility because vertical dispersion is associated with beneficial employee outcomes, such as opportunities for internal advancement and aspirational comparisons. Conversely, pay dispersion will increase inter-firm mobility when such differentials are horizontal. Because these differences in pay are associated with harmful employee outcomes, such as negative social comparisons, fairness concerns, and limited advancement prospects, they will motivate workers to switch employers, generating the "mobility-inducing effect," frequently seen in past research. We take advantage of the numerous empirical benefits of the large Swedish employee-employer matched panel data for the period 2001-2008 to test our arguments. Whereas many organizations observe policies of pay secrecy (Belogolovsky and Bamberger, 2014; Collela, et al., 2007), Sweden has had a long history of financial transparency since 1903, when tax returns became public. The Swedish sample merges data from the Firm Financial Statistics Database (Foretagens ekonomi [FEK]), containing the annual accounts of all limited liability firms in Sweden, acquired from the Swedish Companies Registrations Office, and the Longitudinal Integrated Database for Medical Insurance and Labor Studies (LISA), which draws on several different individual-level statistics obtained from registry databases for the entire Swedish population. Using these fine-grained population data on all firms, employees, and their occupational information, we identify all instances of mobility, including remaining in current employment, advancing internally, or moving externally to another employer. We further compute detailed and precise measures of horizontal and vertical dispersion in wages, based on hierarchical occupational classification (Tåg, Åstebro and Thompson, 2016). We find systematic evidence that the effect of wage dispersion on inter-firm mobility critically depends on the organizational level at which wages are dispersed: vertical variance in pay reduces 2 Although bases for vertical and horizontal pay dispersion are not comparable, past studies have treated the two as equivalent, and scholars linked the two with similar mechanisms and similar mobility outcomes (

Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine

“…It is this two‐fold effect on knowledge workers' loyalty that sets CSR apart from other management practices, which also aim to prevent knowledge leakage to rival firms. Numerous practices—such as increasing the legal protection of intellectual property through patenting (Kim & Marschke, ), establishing a reputation for toughness in patent enforcement (Agarwal et al, ), signing noncompete agreements (Marx, ; Marx et al, ), and enhancing pecuniary incentives (Carnahan et al, ; Kacperczyk & Balachandran, )—allow firms to reduce knowledge spillovers through decreased mobility of knowledge workers. Yet, as discussed above, many knowledge workers still leave for rival firms, and interfirm mobility tends to be higher among those whose know‐how is also valuable to competing companies (e.g., Ganco et al, ; Marx et al, ).…”

“…As such, employee know‐how is a key source of sustainable competitive advantage (e.g., Barney, ; Hall, ). Yet it also represents a major managerial challenge, as employees with valuable knowledge are the most likely ones to walk out the door (Coff, ; Ganco, Ziedonis, & Agarwal, ; Kacperczyk, ; Kacperczyk & Balachandran, ), taking their valuable knowledge with them to join rival firms or create new ventures. This may lead to interfirm knowledge spillovers, resulting in a potential leakage of a firm's proprietary knowledge to rivals (Agarwal, Ganco, & Ziedonis, ; Almeida & Kogut, ; Rosenkopf & Almeida, ).…”

Dark Half: Decentralized Bargaining and Well-Being at Work

“…job-quitting behavior (Kacperczyk and Balachandran 2018). The authors show that horizontal pay dispersion is positively related to cross-firm mobility, whereas vertical pay dispersion is negatively related to cross-firm mobility, especially among the bottom earner group.…”

Effects of CEO Identity on Non-family Managers’ Pay Dispersion in Family Firms: A Social Comparison Perspective

“…On the other hand, the larger dispersion in fixed pay leads to lower innovation. For managerial turnover research, Kacperczyk and Balachandran (2018) gave us a reference that vertical and horizontal pay dispersion led to different answers, that is, the horizontal wage comparisons could increase cross-firm turnover because these managers induce inequity concerns, but vertical wage comparisons could decrease the turnover across firms because they enhance self-motivation.…”

“…Compensation, as an initial symbol of a manager's human capital value and social status (Main et al, 1993), becomes an important object of social comparison. Social comparison theory states that individuals focus on comparing their compensation to determine whether they receive fair treatment (Festinger, 1954;Fredrickson et al, 2010), and higher pay dispersion could lead to lower firm performance (Jaskiewicz et al, 2017;Patel et al, 2018;Zhang et al, 2020), or increased managerial turnover (Ridge et al, 2017;Kacperczyk and Balachandran, 2018). However, under the framework of social comparison theory, few studies have focussed on the factors that influence managerial pay dispersion in family firms.…”