Such mainstream thinking has been challenged: Drawing on social
exchange models, equity notions, and related work in sociology and psychology, Akerlof
and Yellen (1988, 1990), Milgrom and Roberts (1988), and Levine (1991) argue that low
pay dispersion may have a positive effect on employee efforts and productivity by creating
harmonious and efficient labor relations thereby leading to higher output and productivity.3
In a similar vein, Levine (1991) develops a model showing that lowering pay dispersion
can increase employee cohesiveness, which in turn will enhance productivity.