Does pay inequality affect worker effort? An assessment of experimental designs and evidence

Marco Fongoni

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Abstract: This paper develops a theoretical framework to think about employees' effort choices, and applies this framework to assess the ability of existing experimental designs to identify the effect of pay inequality on worker effort. The analysis shows that failure to control for a number of confounds—such as reciprocity towards the employer in multi-lateral gift-exchange games (vertical fairness), or the incentive to increase effort when feeling underpaid under piece rates (income targeting)—may lead to inaccurate interpretation of evidence of treatment effects. In light of these findings, the paper provides a set of recommendations on how to improve identification in the design of controlled experiments in the future.

Keywords: Pay inequality; Effort; Laboratory experiments; Fairness; Reference dependence (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-exp and nep-hrm
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Published in Journal of Economic Behavior and Organization, 2024, 220, pp.697 - 716. ⟨10.1016/j.jebo.2024.02.035⟩

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Journal Article: Does pay inequality affect worker effort? An assessment of experimental designs and evidence (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04678955

DOI: 10.1016/j.jebo.2024.02.035

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