Pay Inequity and Peer Dynamics: New Field Evidence on Labor Market Sorting

Subhasish Dugar and Kenju Kamei
Additional contact information
Subhasish Dugar: Department of Economics, University of Utah

No DP2025-020, Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University

Abstract: Performance pay raises productivity but can also trigger costly peer dynamics, which can influence workers’ preferences over pay schemes. We test whether sabotage risk drives compensation choices using a field experiment with Indian vegetable packers. Workers first perform under exogenously assigned tournaments that differ only in pay inequality but are equivalent in total payout, then choose between them, enabling endogenous sorting. Under impartial expert evaluation, workers select steeper tournaments, indicating no aversion to inequality or competition. Under peer evaluation, sabotage escalates sharply with pay dispersion, prompting workers to preemptively prefer more equitable schemes. Our study expands the literature on labor market sorting by identifying sabotage risk as a fundamental driver of sorting and shows how destructive peer dynamics can rationalize compressed wage structures in practice.

Keywords: Field experiment; Pay equity; Tournament; Sabotage; Sorting. (search for similar items in EconPapers)
JEL-codes: C93 D81 J31 M52 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2025-09-18
New Economics Papers: this item is included in nep-exp, nep-hrm and nep-lma
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ies.keio.ac.jp/upload/DP2025-020_EN.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:dp2025-020

Access Statistics for this paper

More papers in Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University Contact information at EDIRC.
Bibliographic data for series maintained by Institute for Economics Studies, Keio University ().