1 Introduction
Starting in the 1980s, there has been an increasing interest in the use of what have commonly been
called “innovative” or “high- performance” workplace practices in the United States. The interest grew
mainly after observing the success of Japanese firms using management practices such as Total Quality
Management (TQM), self-managed teams and job rotation. With the recent availability of plant-level
data on human resources and workplace organization practices, researchers have found evidence that
these practices deserve their label “high-performance” in that they appear to increase firm performance. 1
Although improvement in firm productivity has been the main focus of analysis, a related aspect
concerns the effect of these workplace practices on wage outcomes. In particular, practices such as
problem-solving meetings, self-managed teamwork or job rotation, which are aimed at increasing em-
ployee involvement in the firm’s production and business objectives, have significant effects on the
responsibilities of workers at the lower end of the firm’s job ladder. This leads to the following some-
what overlooked questions: What is the relationship between employee involvement workplace practices
and within-firm wage dispersion? Is wage dispersion affected by adoption of such practices? Does the
intensity with which the practices are used (measured by the firm’s percentage of workers under the
given practice) affect wage dispersion?
This paper explores the relationship between employee involvement workplace practice adoption and
wage dispersion within firms using data from the National Employer Survey (NES), which consists of
two nationally representative samples of U.S. private establishments interviewed in 1993 and 1996. I
analyze the impact of adopting these employee involvement workplace practices on the ratio of average
wages of managerial workers to those of production workers. I also examine the robustness of this
relationship to alternate definitions of adoption. Importantly, following recent theoretical and empirical
work emphasizing the importance of complementarities between practices, I allow for different effects
on wages in firms that implement a system involving several of these practices relative to firms which
adopt individual practices. Finally, the effect of employee involvement practices on wage dispersion may
differ for firms above or below average wage dispersion. I employ quantile regressions to examine the
impact of employee involvement workplace practice adoption at different percentiles of the distribution
of within firms wage dispersion.
A relationship between the implementation of employee involvement workplace practices and wage
dispersion can be motivated theoretically from two perspectives: a productivity perspective and an
incentives perspective. According to the productivity approach, workplace practices can be associated
with either lower or greater wage dispersion. Greater decentralization in decision making increases
1 For a review of the empirical literature on human resources workplace practices and their effect on firm performance,
see Ichniowski, Kochan, Levine, Olson and Strauss (1996).