Brands in the Labor Market: How Vertical and Horizontal Brand Differentiation Impact Pay and Profits Through Employee–Brand Matching.

This article investigates the distinct roles of vertical and horizontal brand differentiation in labor markets, focusing on how these dimensions affect employee pay and firm profits through employee–brand matching. Vertical brand differentiation—perceived superior quality—tends to be associated with lower employee pay, while horizontal brand differentiation—perceived uniqueness—correlates with higher pay, especially for employees whose characteristics align with the brand's unique attributes. Using archival data from publicly traded firms and experiments with HR managers, the study finds that leveraging vertical brand differentiation to reduce pay ultimately lowers profits due to decreased employee productivity and retention, whereas higher pay linked to horizontal brand differentiation enhances profits via improved employee behaviors. The research also identifies firm strategies across labor availability, identification, attraction, and development that moderate these brand–pay relationships and their impact on profitability.