Wage Inequality Makes Even Highly Paid Employees Work Less

Wage Inequality Makes Even Highly Paid Employees Work Less

Pay disparities aren't just bad for workers.

Turns out unequal pay for equal work also hurts employers: It makes workers of all pay levels significantly less productive and more likely to play hooky, reducing attendance by 12%, according to a new study by economists at Columbia University and the University of California at Berkeley. 

In a month-long experiment with Indian manufacturing workers, the researchers randomized four different groups of workers: One where everyone was paid a "high" salary, another one with a "medium" salary, a third with a "low" salary, and a fourth group where the pay was uneven amongst the workers.

Differences between the "high" and "medium" salary, and between the "medium" and "low" salary, were relatively small — less than 5% — but they allowed the economists to compare the output and workplace attendance of highly paid workers who made more than their peers with well-paid workers who made the same.

In the end, the study authors found that workers in unevenly paid groups all have a tendency to cut corners, with "little evidence that performance improves if a worker is paid more than his peers," and, in fact, more missed work for even those workers on the beneficial side of a pay gap. 

At the conclusion of the study, workers were asked to participate in a game to test productivity and cohesion. They were divided into different groups and asked to assemble a tower using the same batch of raw materials. 

The higher the tower, the more they got paid. 

Despite this incentive, the towers produced by groups with disparate wages were 17.5% shorter on average. 

While there have been previous studies on pay inequities and their effect on workers, this is one of the first that been able to put so fine a price on it, the study's authors wrote.

Notably, the study also shows that pay gaps have consequences for everyone, not just the groups who face disparities: White House figures show women earn 79 cents for every dollar that men make, and Black and Latina women earn even less, making 64 and 56 cents, respectively, for every dollar a white man earns. 

One recent study from Earnest found that — not only is the gender pay gap alive and well in the year 2016 — but it also widens as women advance in their careers: Women at the manager level face a pay gap about three times the size of the gap non-manager women experience.

A recent analysis from the Economic Policy Institute found that gender-driven pay gaps exist even within the same occupation, and even after accounting for hours worked, education level, and other key factors. 

Luckily, there are already signs that the problem of unequal pay is starting to be taken more seriously by politicians. Massachusetts just became the first state to ban employers from asking about a potential hire's previous salary.

The thinking goes that if employers can't ask what you made in your previous job, you'll have a better chance to negotiate what your labor is worth — rather than getting pigeonholed by an earlier salary.

That could be a pretty big help to groups that tend to experience pay gaps, including women, people of color, and gay men.

Ambiguity over what even constitutes fair pay is at least part of the problem: One study found that fewer than 40% of employers have rules in place to determine compensation. 

Read more:
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• Why Is the Cost of Childcare Rising While Workers' Wages Are Dropping?