The Morale Effects of Pay Inequality (Breza) Class 4 Flashcards
What is the aim of the paper?
To study how workers change the amount of effort they exert when they find out that their co-worker is being paid more than them. This is done both when they are aware that their colleague is more productive than them, as well as when this is not obvious.
What would the standard economic model predict should be the impact of workers finding out other colleagues level of pay?
The standard model predicts workers shouldn’t care about their colleagues level of pay when deciding how long to work and should be self-interested.
What type of behaviour (that Is contrary to standard economic theory) is this paper trying to test for?
Not being Self -interested:
people NOT being self-interested when making labour supply decisions and caring about their pay RELATIVE to others when deciding how long to work.
Equity
What is wage compression?
When wages vary less than the Marginal product of labour (labour productivity)
Essentially people aren’t paid solely based on their productivity, some people are likely to be paid above their MP and for very productive workers they are likely to be paid below their MP. Potentially because employers know workers care about their relative pay and would work less if they knew they were being paid less.
describe the methodology
They set up a workshop in India to employ people for one month. People were put in different production units with 3 workers per unit. All 3 people on the same unit produce the same item e.g a cloth but people on different units produce different items e.g. a cloth vs. a broom.
People on the same unit work around eachother and have lunch together and not people from other units (so people from the unit can easily compare pay)
people are paid a flat rate for showing up to work
There were 4 different types of pay set up (pay disparity and the 3 types of pay compression groups) based on what unit you were in
What were the 4 different categories of payment across the units
Some units were :
pay disparity- one person would get wHigh one wmed one wlow based on their respective productivity at the start
Compressed- People would all get the same wage either low, medium or high
What type of experiment was this?
A RCT field experiment.
People were randomly assigned to different units
Did workers talk about their wages with their colleagues?
Although the employees didn’t tell the employers about the differing wages, 87% of workers could accurately feedback the wage of their other 2 workers in their unit.
They could only accurately feedback workers from other units 7.2% of the time
Did the results differ to what the standard economic model predicts (did pay disparity cause people to lower their effort)
yes, on average output fell by 22% when a worker was paid less than both of their colleagues.
Interestingly, on Pay Disparity units the highest paid worker had (10%) lower attendance than their counterparts in the Compressed units- suggests people care about equity.
NEXT BOTTOM OF PG 5 RESULTS
Howhasthattheorybeenconfirmedinfurtherexperiments?
Talk about 2 other studies briefly (near start of paper)
Whatexperimentaltreatments/policiescouldbeusedtoovercomethe anomalyorbias?
Wage compression?
