People weigh salaries more than ratios in judgments of income inequality, fairness, and demands for redistribution

Abstract

Five experiments (total n = 2422, with U.S. American and French participants, four preregistered) show that people are more likely to use median salaries rather than CEO-median employee compensation ratios when making inequality and fairness judgments based on company compensation data. In separate evaluation of companies, we find no significant impact of compensation ratios, which express objective levels of income inequality, but a significant impact of median salaries. In joint evaluation, ratios have an impact, but median salaries have a bigger impact. Our results point to a difference between perceived and actual inequality indicators: people do not perceive inequality based on a widely-used indicator of inequality (compensation ratios), but rather use representative workers’ salaries, and believe lower representative wages are connected to higher inequality. We discuss theoretical implications for the psychological understanding of economic inequality, and practical implications for the regulation of the presentation of compensation data.