Wednesday, November 17, 2010

It pays not to know your colleagues' pay

People like you get on my nerves. That is, if you are paid more than I am. And if we work together. Apart from that you're fine. This is on the basis of this recent NBER paper which looks at how work satisfaction is diminished when people find out how much more their colleagues are paid. Knowing how much less some colleagues are paid on the other hand doesn't matter. So there is envy but no smugness. That's something I suppose. Sometimes a little knowledge is a dangerous thing.

Inequality at Work: The Effect of Peer Salaries on Job Satisfaction
David Card, Alexandre Mas, Enrico Moretti, Emmanuel Saez

Economists have long speculated that individuals care about both their absolute income and their income relative to others. We use a simple theoretical framework and a randomized manipulation of access to information on peers' wages to provide new evidence on the effects of relative pay on individual utility. A randomly chosen subset of employees of the University of California was informed about a new website listing the pay of all University employees. All employees were then surveyed about their job satisfaction and job search intentions. Our information treatment doubles the fraction of employees using the website, with the vast majority of new users accessing data on the pay of colleagues in their own department. We find an asymmetric response to the information treatment: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected. Our findings indicate that utility depends directly on relative pay comparisons, and that this relationship is non-linear.


Mark McG said...

This probably doesn't help then

Kevin Denny said...

Indeed, but I am sure they are all wonderful human beings who, since they are paid their marginal revenue product [dP(Q(L)).Q(L)/dL since you asked], deserve every cent they earn.