Absenteeism has been shown to have numerous negative financial and non-financial implications, but what are the causes? A recent study looked at the relationship between salary dispersion and absenteeism in the workplace, through the study of Belgian private sector companies. The results of this study indicated that there is a relationship between salary dispersion in a company and the sickness absenteeism within that company, with higher dispersion leading to higher absenteeism. The researchers also found that the size of the influence of salary dispersion on absenteeism was greater in companies with a greater proportion of blue-collar workers.
Key Topics: Pay for performance; Absenteeism; Wage dispersion
Title of Reviewed Article: Are workers less absent when wage dispersion is small?
Researchers: Benoît Mahy (University of Mons), François Rycx (University of Brussels) and Mélanie Volral (University of Mons).
Publication: International Journal of Manpower, 2016, Vol. 37 No. 2, pp. 197-209.
Setting the Scene
Absenteeism is undoubtedly a significant issue for companies as it leads to sizable costs and other issues. Securex (2013) for example, estimated average cost of sickness absenteeism at near to €1m for Belgian companies with more than 200 employees. According to the European Foundation for the Improvement of Living and Working Conditions (2010), the primary reasons for absenteeism are physical problems, health issues, and work-related stress.
Prior research suggests that absenteeism is an indicator of worker satisfaction, and that various human resources practices can be used to increase job satisfaction and as a result decrease absenteeism. Companies often use compensation and pay for performance mechanisms to motivate employees and drive productivity but a consequence of such mechanisms can be greater salary dispersion. The researchers suggest that if this salary dispersion is too high, that it could lead to reduced cooperation among employees.
There is also some theoretical support that salary compression improves employee relations and cohesiveness between employees (Akerlof & Yellen, 1988; Levine, 1991) however, research specifically relating to the link between absenteeism and salary dispersion is limited, although research in this area typically finds a negative relationship between salary dispersion and absenteeism (e.g. Dale-Olsen, 2012; Battisti & Vallanti, 2013). As such, the current study looked to further analyze this relationship, by examining the impact of salary dispersion on sickness absenteeism in the Belgian private sector.
How the research was conducted
The researchers analyzed a data set consisting of 9,255 companies over the period 1999-2006. This data set is taken from two surveys for this period, namely the “structure of earnings survey” and the “structure of business survey”, compiled by Statistics Belgium. These surveys contained information relating to company characteristics, financial information, and details relating to employees in these companies.
This study used a methodology based on that used in previous related research (Winter-Ebmer & Zweimüller, 1999) to determine the impact of salary dispersion on absenteeism. Using this methodology, salary dispersion was measured between employees with similar characteristics.
Key Research Findings
The results of this study indicate the existence of a positive and significant impact of salary dispersion on absenteeism.
The impact of salary dispersion on absenteeism was shown to be greater in companies with larger blue collar employee populations.
As noted, the results indicate a significant and positive impact of intra-firm salary dispersion on absenteeism. Therefore, the results indicate that greater salary dispersion is likely to be harmful to job satisfaction and increase absenteeism.
Interestingly, the researchers find a hump-shaped relationship between salary dispersion and sickness absenteeism, whereby increasing salary dispersion is met with greater absenteeism up to a point, after which greater salary dispersion leads to less absenteeism, with the turning point of this relationship at a very high level. The researchers suggest that this could be the product of, as salary dispersion grows, employees would see this negatively and may be more absent and subsequently would leave the company. The result being that remaining employees would be primarily those who view this in a less negative light.
The results indicate that absenteeism amongst blue collar workers is likely to be greater as a result of salary dispersion, which is broadly consistent with previous research (McCausland et al., 2005). The researchers suggest that blue collar employees in particular may perceive salary as unfair if they don’t feel duly empowered to influence it.
Organizational and Reward Implications
The key practical implication of the currently research is clear: if companies have high levels of compensation dispersion then they should anticipate the negative consequence of increased absenteeism. For some companies, this might be an acceptable trade off, however for those looking to address this issue, a first step would be to review the rationale behind their current compensation disparity and put in place the steps to address it over time. Companies with workforces largely made up of blue collar employees should be particularly thoughtful of this dispersion-absenteeism relationship, as blue collar workers appear to be more sensitive to salary dispersion.
There have been various studies looking at the relationship between salary dispersion and company productivity but the present study is one of the few which focuses on salary dispersion and absenteeism, leading to a number of valuable insights. Further research in this area would be welcomed, particularly in relation to how absenteeism might be effected by other reward elements, such as bonuses.
Source Article: Mahy, B., Rycx, F. & Volral, M. (2016). Are workers less absent when wage dispersion is small? International Journal of Manpower, 37(2), 197-209.
Published by: Emerald Group Publishing Limited.
For further details and access to the full journal article Click Here (subscription or payment may be required).
Akerlof, G. A. & Yellen, J. L. (1988). Fairness and unemployment. American Economic Review, Papers and Proceedings, 78(2), 44-49.
Battisti, M. & Vallanti, G. (2013). Flexible wage contracts, temporary jobs, and firm performance: evidence from Italian firms. Industrial Relations, 52(3), 737-764.
Dale-Olsen, H. (2012). Sickness absence, performance pay and teams. International Journal of Manpower, 33(3), 284-300.
European Foundation for the Improvement of Living and Working Conditions (2010). “Absence from work” report, Dublin.
Levine, D. I. (1991). Cohesiveness, productivity and wage dispersion. Journal of Economic Behavior and Organization, 15(2), 237-255.
Mahy, B., Rycx, F., & Volral, M. (2011). Does wage dispersion make all firms productive? Scottish Journal of Political Economy, 58(4), 455-489.
McCausland, W. D., Pouliakas, K & Theodossiou, I. (2005). Some are punished and some are rewarded: a study of the impact of performance pay on job satisfaction. International Journal of Manpower, 26(7/8), 636-746.
Nilsen, K. (2011). Do wage policies affect employee effort? Working paper, Institute for Social Research, Oslo.
Pfeifer, C. (2010). Impact of wages and job levels on worker absenteeism. International Journal of Manpower, 31(1), 59-72.
Securex (2013). “Absentéisme en 2012 – Indicateur gagnant en importance”, whitepaper, Brussels, Securex.
Winter-Ebmer, R. & Zweimüller, J. (1999). Intra-firm wage dispersion and firm performance. Kyklos, 52(4), 555-572.
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