Marco Fongoni
University of Strathclyde
Sofie R. Waltl
University of Cambridge & Vienna University of Economics and Business
Nikola Kilzer
Vienna University of Economics and Business
Jasper Hepp
University of Bielefeld
The research benefits from funding by the University Jubilee Fund of the City of Vienna (Hochschuljubiläumsfonds der Stadt Wien), grant PRO-FAIR, and internal funding by the Vienna University of Economics and Business and LISER.
Abstract
This article provides new experimental evidence on the interplay between pay inequality, procedural fairness, and employees’ effort. We propose a novel laboratory design that enables us to: (i) isolate the effect of wage inequality on effort from other confounding factors, such as piece-rate incentives or gift-exchange; (ii) understand the mediating role of procedural fairness; and (iii) directly measure employees’ perceptions of fairness. We find that employees respond more strongly to disadvantageous wage inequality, and that this is related with their perceptions of being treated unfairly. However, when this inequality is justified, its effect on fairness perceptions and effort disappears. A heterogeneity analysis reveals that treatment effects are larger among female and younger subjects. We conclude that wage inequality affects employees’ perceptions of fairness and effort, and that fair procedures can nevertheless help mediate its adverse effects.
JEL.: C91, D01, D91, J31
Keywords: Procedural Fairness, Transparency, Earnings Inequality, Experimental Economics, Morale, Real-Effort Task
Dissemination
Registration DOI: 10.17605/OSF.IO/8EFRS
Presentations (incl. scheduled): [34th National Conference of Labour Economics, Universita del Piemonte, Novara, Italy, April 2019][University of Reading, October 2019] [NOeG Winter Workshop, Vienna, Austria, December 2019][Inner Mongolia Agriculture University, China, August 2025][WU Research Institute Economics of Inequality, October 2025][In_equality Conference 2026, Konstanz]
Sofie R Waltl 