NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Morale Effects of Pay Inequality

Emily Breza, Supreet Kaur, Yogita Shamdasani

NBER Working Paper No. 22491
Issued in August 2016
NBER Program(s):Development Economics, Labor Studies

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.

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Document Object Identifier (DOI): 10.3386/w22491

Published: Emily Breza & Supreet Kaur & Yogita Shamdasani, 2018. "The Morale Effects of Pay Inequality*," The Quarterly Journal of Economics, vol 133(2), pages 611-663.

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