Wage transparency and effort comparison in a context of heterogeneous workers ∗ Aurélie Bonein† November 4, 2013

Abstract This paper experimentally investigates the effect of the observability of a coworker’s effort on wages and efforts decisions in a context of wage transparency and heterogeneous abilities. I find a larger within-firm wage difference when the efforts the more able worker exerts are observable. The knowledge of a co-worker’s effort has a positive impact on the reciprocity of the workers who act first (peer effects), while it has a detrimental effect on that expressed by workers who act subsequently (responsibility effect). Regardless of their ability, workers exert efforts that are positively related to those supplied by their co-workers. This strategic complementarity of efforts is partially explained by inequity aversion. Overall, the observation of a co-worker’s effort has a beneficial effect on reciprocity.

Keywords: Gift-exchange game, Heterogeneous ability, Social preferences JEL Classification: C70, C91, D03, J24, J31, J82

∗I

am grateful to Klaus Abbink, Catherine Eckel, Olivier l’Haridon, David Masclet, Ragan Pétrie, participants at the 1st Days of ASFEE conference in Grenoble, at the ESA meeting in Copenhagen and members of the ANR Conflict for their helpful comments and suggestions that improve the paper a lot. I would like to thank Elven Priour for his excellent help in conducting the experiments. Financial support from the French National Agency for Research (ANR Conflict ANR-08-JCJC-0105-01) is gratefully acknowledged. All errors remain my own. † CREM - University Rennes 1. E-mail: [email protected]

1