Wage Dispersion and Team Performance - An Empirical Panel Analysis

The impact of intra-team pay dispersion on team productivity is a highly discussed issue. On one hand, wage differentials provide incentives for higher employee effort. On the other hand, pay inequality discourages cooperation among team members, which reduces performance. Analyzing non-linear effects of wage dispersion in professional team sports, we find empirical evidence that an initial increase of intra-team inequity reduces team performance, but at some point the relation reverses. In addition, we show that the pay structure of a team clearly affects the teamÕs playing style.