University of Canterbury economics team studying workers’ comparing wages

August 31, 2014

A University of Canterbury economics research team is looking at fairness of the job assignments and whether workers are sensitive to the wages of their co-workers.

The research team, headed by Associate Professor Maro¹ Servátka, is investigating if workers react to the employers’ decisions about job allocations and if employers consider the importance of the job assignment process and reduce wage differences.

``It has been shown that workers choose not to produce their full effort when wages are intentionally low but they work harder when external processes determine their wages,’’ Associate Professor Servátka says.

The research has implications for firms’ wage policy decisions about wage secrecy and offering similar wages in order to avoid diminished performance of a company or organisation.

The project is being conducted at the university’s New Zealand Experimental Economics Laboratory.

A total of 288 students participated in the study, 96 of them were in a role of an employer and 192 in a role of a worker.

The research team analysed their actual decisions in a simulated labour market. All participants were financially motivated. The more profit they made in the market, the more cash they got paid for their participation in the experiment. This way the researchers saw how people realistically behave when facing various fairness scenarios, making their results of interest to existing real world employers.

Postgraduate student Katarina Danková says people are driven by social comparison and workers look at their co-workers who are in similar circumstances to evaluate their outcomes and judge whether they have been treated fairly.

``Workers often compare their wages within their own firm. Social comparisons may affect a worker’s attitude toward an employer or a firm, and thus in turn affect their performance. If workers feel that the employer is discriminating, they can withhold all their effort which can lead to a lack of cooperation and lower output for the firm,’’ Danková says.

``Firms often pay workers the same wage for a given job, regardless of workers’ productivity levels. If workers are paid below what they think they deserve, which depends on their co-workers’ wages, they might retaliate by reducing their performance.

``Understanding the impacts of reducing wages is important for employers since it can be profit maximising for firms to pay workers similar wages.’’

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