On common evaluation standards and the acceptance of wage inequality

Abstract

This study investigates how the exogenous provision of norm information concerning wage inequality influences the acceptance of wage differences. In an experiment where one employer interacts with two employees who differ in productivities, two main treatments provide information suggesting either an injunctive norm for small or for large wage differences prior to the interaction.Norm-relevant information significantly shifts individual beliefs concerning the appropriateness of wage inequality: Subjects who receive information hinting at a norm for high (low) wage inequality are more (less) likely to consider larger wage differences to be appropriate. Yet, when a norm for low wage inequality is suggested, a non-negligible share of employers still differentiates strongly, making it difficult to coordinate on a commonly accepted norm for wage inequality. Moreover, norm information signaling high wage inequality positively affects the output of low-performing employees.