Inequitable Pay and Work Performance: Evidence from Lab Experiments in Thailand

Abstract

While inequitable pay can hurt morale among disadvantaged workers, it is not clear whether it affects work performance. This paper examines how inequitable compensation affects work performance using lab experiments among university students aged mostly between 18 and 22. Results show that compensation disadvantage improves performance but lowers satisfaction when unequal treatment is arbitrary. The lower satisfaction seems to result from the perception of unfairness, and that perception became clearer after subjects experienced unfair treatment. Disadvantaged subjects seem to try to increase their effort to match the outcome of advantaged peers. When unequal treatment is a result of competition, the performance of disadvantaged subjects is not higher than that of the control group. As such, unequal treatment is undesirable from the perspective of worker satisfaction, but is desirable when considering performance. This evidence supports anti-discrimination policies, as firms have an incentive to improve performance under discriminatory practices that undermine social justice and worker well-being.