CeDEx 2012-13: Pay Secrecy and Effort Provision

Abstract

Pay secrecy is often justified on the ground of concerns about the detrimental consequences of intra-firm pay comparisons for work morale and performance. Surprisingly, however, there is only limited empirical evidence that the availability of pay comparison information is detrimental for effort provision. In this paper we study pay comparison effects in a gift exchange game laboratory experiment where an employer is matched with two symmetric employees. We compare effort choices made by employees in a ‘pay secrecy’ treatment and in two ‘public wages’ treatments where employees are informed of the wage paid to the coworker. In one ‘public wages’ treatments the employer can choose both wages she pays to the employees, while in the other treatment the wage paid to one employee is regulated exogenously. We show that pay disclosure can be detrimental for effort provision if employees are treated unequally.

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Now published in Economic Inquiry 2013; 51(3):1779-1794

Authors

Daniele Nosenzo

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