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The Morale Effects of Pay Inequality

Emily Breza, Supreet Kaur and Yogita Shamdasani

The Quarterly Journal of Economics

2017

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.

JEL Codes

General Economics: General, Role of Economics, Role of Economists, Market for Economists, Relation of Economics to Other Disciplines, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Economic History: Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy: General, International, or Comparative, Economic History: Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy: Asia including Middle East, Economic History: Government, War, Law, International Relations, and Regulation: Europe: Pre-1913, Economic History: Government, War, Law, International Relations, and Regulation: Asia including Middle East, Economic History: Transport, Trade, Energy, Technology, and Other Services: Europe: 1913-, Micro-Business History: Europe: Pre-1913, Economic Development: Human Resources, Human Development, Income Distribution, Migration

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