Working Paper: NBER ID: w22491
Authors: Emily Breza; Supreet Kaur; Yogita Shamdasani
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.
Keywords: Pay Inequality; Worker Morale; Labor Supply; Field Experiment
JEL Codes: D03; E24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pay inequality (J70) | output (C67) |
| pay inequality (J70) | attendance (I29) |
| pay inequality (J70) | morale (I31) |
| perceived justifications for pay differences (J31) | morale effects (E71) |
| transparency in productivity (D20) | pay inequality (J70) |
| pay disparity (when productivity differences are clear) (J31) | output (C67) |
| pay disparity (when productivity differences are clear) (J31) | attendance (I29) |
| pay disparity (when productivity differences are clear) (J31) | group cohesion (D70) |