In this study, we examine the impact of relative pay (manager pay divided by average worker pay) on a firm's productivity. Using data from a major transitional economy, China, we find that relative pay is negatively associated with high productivity. Our results provide support for the view that workers are alienated when their incomes are far lower than that of top management and this leads to lower productivity. This effect is most pronounced in labor intensive firms.
- Productivity; Top management pay; Relative pay; Transitional economy