PAY SECRECY AND EFFORT PROVISION

Authors

  • DANIELE NOSENZO

    1. Nosenzo: School of Economics, University of Nottingham, University Park, Nottingham NG7 2RD, UK. Phone +44(0)115 84 67492, Fax +44(0)115 95 14159, Email Daniele.Nosenzo@nottingham.ac.uk
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    • I thank the Editor and two anonymous referees for useful comments. I have received helpful comments from Robin Cubitt, Armin Falk, Simon Gächter, Martin Sefton, Lise Vesterlund, seminar participants at the Tinbergen Institute Amsterdam, and participants at the 2009 ESA European Regional meeting. Funding from the University of Nottingham and the Leverhulme Trust (ECF/2010/0636) is gratefully acknowledged. I am grateful for the hospitality of the University of Pittsburgh while working on this paper.


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, I study pay comparison effects in a gift-exchange game laboratory experiment where an employer is matched with two symmetric employees. I 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 co-worker. In one “public wages” treatment 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. I show that pay disclosure can be detrimental for effort provision if employees are treated unequally. (JEL A13, C92, J31)

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