The effects of pay inequality


Published 08.02.18
Photo credit:
Alpha Stock Images

Pay inequality affects attendance, productivity and the social fabric of manufacturing workers in India, thus revealing impacts on firm productivity.

The idea that worker utility is affected by co-worker wages has potentially broad labour market implications. In a month-long experiment with Indian manufacturing workers, Emily Breza, Supreet Kaur and Yogita Shamdasani (Breza et al. 2017) establish the effects of pay inequality on co-workers within production units. She finds that pay inequality reduces output, as well as attendance by 10%. Pay disparity also lowers co-workers' ability to cooperate. However, when workers can clearly observe productivity differences, pay inequality has no discernible effect on output, attendance, or group cohesion.

Editors' note: This video is based on this PEDL project.