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The Morale Effects of Pay Inequality

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  • Emily Breza
  • Supreet Kaur
  • Yogita Shamdasani

Abstract

Relative-pay concerns have potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether coworkers within production units receive the same flat daily wage or differential wages according to their (baseline) productivity ranks. When coworkers’ productivity is difficult to observe, pay inequality reduces output by 0.45 standard deviations and attendance by 18 percentage points. It also lowers coworkers’ ability to cooperate in their own self-interest. However, when workers can clearly perceive that their higher-paid peers are more productive than themselves, pay disparity has no discernible effect on output, attendance, or group cohesion. These findings help inform our understanding of when pay compression is more likely to arise in the labor market

Suggested Citation

  • Emily Breza & Supreet Kaur & Yogita Shamdasani, 2018. "The Morale Effects of Pay Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 133(2), pages 611-663.
  • Handle: RePEc:oup:qjecon:v:133:y:2018:i:2:p:611-663.
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    File URL: http://hdl.handle.net/10.1093/qje/qjx041
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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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