Cohesiveness, productivity, and wage dispersion

Abstract

When work groups support the goals of the firm, firms will want to increase group cohesiveness. If narrowing wage dispersion increases cohesiveness, then companies will pay an efficiency wage to the low end of the wage distribution. This variant of efficiency wages predicts firm wage effects, and predicts that unemployment will be concentrated among low-wage workers. Furthermore, workers at cohesive firms will have higher marginal products than will similar workers at other firms; thus, policies to encourage the growth of cohesive firms will increase national output.