Pay Inequality, Pay Secrecy, and Effort: Theory and Evidence / Gary Charness, Peter Kuhn.

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Charness, Gary

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11786.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We study worker and firm behavior in an efficiency-wage environment where co-workers' wages may potentially influence a worker's effort. Theoretically, we show that an increase in workers' responsiveness to co-workers' wages should lead profit-maximizing firms to compress wages under quite general conditions. Our laboratory experiments, on the other hand, show that --while workers' effort choices are highly sensitive to their own wages-- effort is not affected by co-workers' wages. As a consequence, even though firms in our experiment tended to compress wages when wages became public information, this did not raise their profits. Our experimental evidence therefore provides little support for the notion that inter-worker equity concerns can make wage compression, or wage secrecy, a profit-maximizing policy.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w11786 (Browse shelf(Opens below))	Not For Loan

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November 2005.

We study worker and firm behavior in an efficiency-wage environment where co-workers' wages may potentially influence a worker's effort. Theoretically, we show that an increase in workers' responsiveness to co-workers' wages should lead profit-maximizing firms to compress wages under quite general conditions. Our laboratory experiments, on the other hand, show that --while workers' effort choices are highly sensitive to their own wages-- effort is not affected by co-workers' wages. As a consequence, even though firms in our experiment tended to compress wages when wages became public information, this did not raise their profits. Our experimental evidence therefore provides little support for the notion that inter-worker equity concerns can make wage compression, or wage secrecy, a profit-maximizing policy.