involvement practices intensity. Section 5 concludes.
2 Framework of Analysis
A relationship between workplace organization practices and wage dispersion can be motivated using
two different perspectives of wage determination: incentives or productivity. Both approaches provide
a rationale as to why there might be a link between workplace organization practices and within firm
wage dispersion. This section is divided into two parts. The first part describes the ways in which each
approach motivates the link between workplace organization practices and wage dispersion. The second
part presents an empirical framework, consistent with either of these two approaches, that will serve as
a basis for the estimation part and the interpretation of the results.
2.1 Analytical Framework
According to the productivity approach, employee involvement workplace practices enhance worker
productivity. As a result, workers’ wages may be positively correlated with these practices. Moreover,
in the same spirit as in Breshnahan, Brynjolfsson and Hitt (1999), workplace organization practices
constitute an innovation that is complementary to product innovation and IT investments. These
factors taken together would explain the skill-biased technical changes that operated to increase the
relative demand for skilled workers in the 80’s. The authors find evidence of complementarity between
workplace practices adoption, investment in IT and workers skills. Wage dispersion within and across
establishments may have been affected by the adoption of new workplace organization practices.
The approach based on incentives or worker motivation and its implications for the relationship
between workplace organization and wage dispersion borrows from different literatures. On the one
hand, research in organizational psychology provides a broad literature on the role of pay equity as a
factor affecting employee motivation (Vroom (1964) , Lawler (1971)). An implication of this relationship
would be that for the implementation of the practices to be effective in increasing firm performance,
wage compression may be a necessary tool to increase worker motivation. Economists have also provided
a rationale for the importance of social relations in the workplace and the use of pay compression to
maximize firm performance (Milgrom and Roberts (1988) and Lazear (1989)). Both analysis show
that inducing too much competition in the workplace may lead to output-reducing behavior such as
influence-seeking activity or sabotage of a co-worker’s productivity, for the purpose of obtaining a career
advantage. With a high amount of interdependence among co-workers, the loss of productivity resulting
from such behaviors can be minimized by reducing wage differentials. Levine (1991) further develops
the analysis of the links between workplace organization and wage dispersion by providing a model in