Wage compression

Abstract: Personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers. But it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme. However, when workers' rewards are based on relative comparisons, salary compression reduces uncooperative behavior that is detrimental to the firm. Relative comparisons imply that some reference group must be selected. The major result is that within the relevant groups, some wage compression is efficient.

Abstract: In the human capital model with perfect labor markets, firms never invest in general skills and all cost of general training are borne by workers. When lobor market frictions compress the structure...

Abstract: Using microdata for 22 countries over the 1985–94 period, we find that more compressed male wage structures and lower female net supply are both associated with a lower gender pay gap, with an especially large effect for wage structures Reduced‐form specifications indicate that the extent of collective bargaining coverage is also significantly negatively related to the gender pay gap Together, the wage compression and collective bargaining results suggest that the high wage floors that are associated with highly centralized, unionized wage setting raise women’s relative pay, since women are at the bottom of the wage distribution in each country

Abstract: This paper tests the hypotheses that overall wage compression and low female supply relative to demand reduce a country's gender pay gap. Using micro-data for 22 countries over the 1985-94 period, we find that more compressed male wage structures and lower female net supply are both associated with a lower gender pay gap. Since it is likely that labor market institutions are responsible for an important portion of international differences in wage inequality, the inverse relationship between the gender pay gap and male wage inequality suggests that wage-setting mechanisms, such as encompassing collective bargaining agreements, that provide for relatively high wage floors raise the relative pay of women, who tend to be at the bottom of the wage distribution. Consistent with this view, we find that the extent of collective bargaining coverage in each country is significantly negatively associated with its gender pay gap. Moreover, the effect of pay structures on the gender pay gap is quantitatively very important: a large part of the difference in the gender differential between high gap and low gap countries is explained by the differences across these countries in overall wage structure, with another potentially important segment due to differences in female net supply.