Do Consumers Care about Pay Inequality? Evidence from Household Purchase Data

Abstract

We examine consumer reactions to the first-time disclosure of CEO-worker pay ratios by U.S. public firms in 2018, using micro-level household purchase data. We find that firms disclosing high pay ratios experience a significant decline in consumer purchases. Specifically, sales of these firms’ products drop by 4.9% compared to similar products from firms without high pay ratios, purchased by the same households. This decline is demand-driven and the effect is significant only after the disclosure. Additional analyses reveal that negative consumer reactions are stronger in areas with greater inequality aversion, for high-value or hard-to-verify products, and when consumers are more likely to be exposed to pay ratio information. Overall, our results suggest that consumers are concerned about high within-firm pay dispersions, driven by their social preferences and a loss of trust, to the extent that they are aware of this information.

Keywords: pay disparity, CEO-worker pay ratio, inequality aversion, consumer trust

JEL Classification: J31, M52, E20, D10