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How Much Does Your Boss Make? The Effects of Salary Comparisons

Author

Listed:
  • Zoë Cullen
  • Ricardo Perez-Truglia

Abstract

The vast majority of the pay inequality in an organization comes from differences in pay between employees and their bosses. But are employees aware of these pay disparities? Are employees demotivated by this inequality? To address these questions, we conducted a natural field experiment with a sample of 2,060 employees from a multibillion-dollar corporation in Southeast Asia. We make use of the firm’s administrative records alongside survey data and information-provision experiments. First, we document large misperceptions among employees about the salaries of their managers and smaller but still significant misperceptions of the salaries of their peers. Second, we show that these perceptions have a significant causal effect on the employees’ own behavior. When they find out that their managers earn more than they thought, employees work harder, on average. In contrast, employees do not work as hard when they find out that their peers earn more. We provide suggestive evidence of the underlying causal mechanisms, such as career concerns and social preferences. We conclude by discussing the implications of pay inequality and pay transparency.

Suggested Citation

  • Zoë Cullen & Ricardo Perez-Truglia, 2018. "How Much Does Your Boss Make? The Effects of Salary Comparisons," NBER Working Papers 24841, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24841
    Note: LS PE POL
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    Citations

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    Cited by:

    1. Haaland, Ingar & Roth, Christopher & Wohlfart. Johannes, 2020. "Designing Information Provision Experiments," The Warwick Economics Research Paper Series (TWERPS) 1275, University of Warwick, Department of Economics.
    2. Duchini, Emma & Simion, Stefania & Turrell, Arthur, 2020. "Pay Transparency and Cracks in the Glass Ceiling," The Warwick Economics Research Paper Series (TWERPS) 1311, University of Warwick, Department of Economics.
    3. Brad C. Nathan & Ricardo Perez-Truglia & Alejandro Zentner, 2020. "My Taxes are Too Darn High: Why Do Households Protest their Taxes?," NBER Working Papers 27816, National Bureau of Economic Research, Inc.
    4. Michael Baker & Yosh Halberstam & Kory Kroft & Alexandre Mas & Derek Messacar, 2019. "Pay Transparency and the Gender Gap," NBER Working Papers 25834, National Bureau of Economic Research, Inc.
    5. Zoë B. Cullen & Ricardo Perez-Truglia, 2019. "The Old Boys' Club: Schmoozing and the Gender Gap," NBER Working Papers 26530, National Bureau of Economic Research, Inc.
    6. Marcelo Bérgolo & Gabriel Burdín & Santiago Burone & Mauricio de Rosa & Matías Giaccobasso & Martín Leites, 2020. "Dissecting Inequality-Averse Preferences," Documentos de Trabajo (working papers) 20-19, Instituto de Economia - IECON.
    7. Noy, Shakked & Sin, Isabelle, 2021. "The effects of neighbourhood and workplace income comparisons on subjective wellbeing," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 918-945.
    8. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Across-Country Wage Compression in Multinationals," NBER Working Papers 26788, National Bureau of Economic Research, Inc.
    9. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares," Working Papers 2020-15, Becker Friedman Institute for Research In Economics.
    10. Jack Blundell, 2021. "Wage responses to gender pay gap reporting requirements," CEP Discussion Papers dp1750, Centre for Economic Performance, LSE.
    11. Nicolas L. Bottan & Ricardo Perez-Truglia, 2020. "Betting on the House: Subjective Expectations and Market Choices," NBER Working Papers 27412, National Bureau of Economic Research, Inc.
    12. Jesper Akesson & Sam Ashworth-Hayes & Robert Hahn & Robert D. Metcalfe & Itzhak Rasooly, 2020. "Fatalism, Beliefs, and Behaviors During the COVID-19 Pandemic," NBER Working Papers 27245, National Bureau of Economic Research, Inc.
    13. Li, Cher H & Zafar, Basit, 2020. "Ask and You Shall Receive? Gender Differences in Regrades in College," IZA Discussion Papers 12983, Institute of Labor Economics (IZA).
    14. Diaz, Lina & Houser, Daniel & Ifcher, John & Zarghamee, Homa, 2021. "Estimating Social Preferences Using Stated Satisfaction: Novel Support for Inequity Aversion," IZA Discussion Papers 14347, Institute of Labor Economics (IZA).
    15. Fehr, Dietmar & Vollmann, Martin, 2020. "Misperceiving Economic Success: Experimental Evidence on Meritocratic Beliefs and Inequality Acceptance," Working Papers 0695, University of Heidelberg, Department of Economics.
    16. Menzel, Andreas, 2021. "Knowledge exchange and productivity spill-overs in Bangladeshi garment factories," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 721-746.
    17. Zoë B. Cullen & Ricardo Perez-Truglia, 2018. "The Salary Taboo: Privacy Norms and the Diffusion of Information," NBER Working Papers 25145, National Bureau of Economic Research, Inc.
    18. Tomer Blumkin & David Lagziel, 2019. "Pay Secrecy In Labor Markets With Matching Frictions," Working Papers 1903, Ben-Gurion University of the Negev, Department of Economics.
    19. Alan Benson & Danielle Li & Kelly Shue, 2019. "Promotions and the Peter Principle," The Quarterly Journal of Economics, Oxford University Press, vol. 134(4), pages 2085-2134.
    20. Cher Hsuehhsiang Li & Basit Zafar, 2020. "Ask and You Shall Receive? Gender Differences in Regrades in College," NBER Working Papers 26703, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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