The Morale Effects of Pay Inequality

Journal Article
Published on 1 May 2018

Working paper available through PEDL. Published article available here.


The idea that worker utility is affected by co-worker wages has potentially broad labour market implications. In this paper, published in the Quarterly Journal of Economics, Breza, Kaur and Shamdasani (2018) report on a month-long experiment with Indian manufacturing workers, where they randomize whether co-workers within production units receive the same flat daily wage or different wages (according to baseline productivity rank). For a given absolute wage, pay inequality reduces output and attendance by 0.24 standard deviations and 12%, respectively. These effects strengthen in later weeks. Pay disparity also lowers co-workers’ ability to cooperate in their self-interest. However, when workers can clearly observe productivity differences, pay inequality has no discernible effect on output, attendance, or group cohesion.


Emily Breza

Harvard University

Supreet Kaur

University of California, Berkeley

Yogita Shamdasani

National University of Singapore