The Morale Effects of Pay Inequality

58 Pages Posted: 8 Aug 2016 Last revised: 16 Jun 2022

See all articles by Emily Breza

Emily Breza

Columbia University - Columbia Business School, Finance; Columbia University - Columbia Business School, Finance

Supreet Kaur

Columbia University

Yogita Shamdasani

Columbia University

Date Written: August 2016

Abstract

The idea that worker utility is affected by co-worker wages has potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether co-workers within production units receive the same flat daily wage or different wages (according to baseline productivity rank). For a given absolute wage, pay inequality reduces output and attendance by 0.24 standard deviations and 12%, respectively. These effects strengthen in later weeks. Pay disparity also lowers co-workers’ ability to cooperate in their self-interest. However, when workers can clearly observe productivity differences, pay inequality has no discernible effect on output, attendance, or group cohesion.

Suggested Citation

Breza, Emily and Breza, Emily and Kaur, Supreet and Shamdasani, Yogita, The Morale Effects of Pay Inequality (August 2016). NBER Working Paper No. w22491, Available at SSRN: https://ssrn.com/abstract=2819896

Emily Breza (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Supreet Kaur

Columbia University ( email )

Yogita Shamdasani

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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