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

Format:

Book

Author/Creator:

Charness, Gary.

Contributor:

National Bureau of Economic Research.

Kuhn, Peter.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11786.

NBER working paper series no. w11786

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Pay Inequality, Pay Secrecy, and Effort

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

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.

Notes:

Print version record

November 2005.