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Does Pay Inequality Affect Worker Effort? Experimental Evidence

Listed author(s):
  • Gary Charness
  • Peter Kuhn

We study worker behavior in an efficiency-wage environment in which coworkers’ wages can influence a worker’s effort. Theoretically, we show that an increase in workers’ responsiveness to coworkers’ wages should lead profit-maximizing firms to compress wages. Our laboratory experiments, by contrast, show that while workers’ effort choices are highly sensitive to their own wages, effort is not affected by coworkers’ wages. This casts doubt on the notion that workers’ concerns with equity might explain pay policies such as wage compression or wage secrecy.

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File URL: http://dx.doi.org/10.1086/519540
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 25 (2007)
Issue (Month): ()
Pages: 693-723

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Handle: RePEc:ucp:jlabec:v:25:y:2007:p:693-723
DOI: 10.1086/519540
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 437-459.
  2. Danziger, Leif & Katz, Eliakim, 1997. "Wage Secrecy as a Social Convention," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 59-69, January.
  3. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," NBER Working Papers 12202, National Bureau of Economic Research, Inc.
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  8. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-571, September.
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  13. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
  14. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2004. "Gift Exchange in a Multi-worker Firm," Tinbergen Institute Discussion Papers 04-100/1, Tinbergen Institute.
  15. Gary Charness, 2004. "Attribution and Reciprocity in an Experimental Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 665-688, July.
  16. Fehr, Ernst, et al, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 324-351, April.
  17. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
  18. G Frechette & J Kagel & M Morelli, 2004. "Behavioral Identification in Coalition Bargaining: An Experimental Analysis of Demand Bargaining and Alternating Offers," Levine's Bibliography 122247000000000006, UCLA Department of Economics.
  19. Linda Babcock & Xianghong Wang & George Loewenstein, 1996. "Choosing the Wrong Pond: Social Comparisons in Negotiations That Reflect a Self-Serving Bias," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 1-19.
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