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  • March 2022
  • Article
  • Journal of Political Economy

How Much Does Your Boss Make? The Effects of Salary Comparisons

By: Zoë B. Cullen and Ricardo Perez-Truglia
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Abstract

The vast majority of the pay inequality in an organization comes from differences in pay between employees and their bosses. But are employees aware of these pay disparities? Are employees demotivated by this inequality? To address these questions, we conducted a natural field experiment with a sample of 2,060 employees from a multibillion-dollar corporation in Southeast Asia. We make use of the firm’s administrative records alongside survey data and information-provision experiments. First, we document large misperceptions among employees about the salaries of their managers and smaller but still significant misperceptions of the salaries of their peers. Second, we show that these perceptions have a significant causal effect on the employees’ own behavior. When they find out that their managers earn more than they thought, employees work harder, on average. In contrast, employees do not work as hard when they find out that their peers earn more. We provide suggestive evidence of the underlying causal mechanisms, such as career concerns and social preferences. We conclude by discussing the implications of pay inequality and pay transparency.

Keywords

Salary; Inequality; Managers; Career Concerns; Pay Transparency; Wages; Equality and Inequality; Perception; Behavior

Citation

Cullen, Zoë B., and Ricardo Perez-Truglia. "How Much Does Your Boss Make? The Effects of Salary Comparisons." Journal of Political Economy 130, no. 3 (March 2022): 766–822.
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About The Author

Zoe B. Cullen

Entrepreneurial Management
→More Publications

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    Is Pay Transparency Good?

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    What's My Employee Worth? The Effects of Salary Benchmarking

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    The Spreadsheet

    By: Zoë B. Cullen and Alexander J. MacKay
More from the Authors
  • Is Pay Transparency Good? By: Zoë Cullen
  • What's My Employee Worth? The Effects of Salary Benchmarking By: Zoë B. Cullen, Shengwu Li and Ricardo Perez-Truglia
  • The Spreadsheet By: Zoë B. Cullen and Alexander J. MacKay
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