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Published Article

The Morale Effects of Pay Inequality

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.

Title The Morale Effects of Pay Inequality
Author
  • Emily Breza
  • Supreet Kaur
  • Yogita Shamdasani
Published in The Quarterly Journal of Economics, 133(2), 611-663
Publication Date 10/10/2017
Project Wage Compression in Low Income Labour Markets
See Published Article

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