Do social comparisons motivate workers? A field experiment on relative earnings, labor supply and the inhibitory effect of pay inequality

Abstract In a field experiment where revelation of co-worker earnings and the shape of the earnings distribution are exogenously controlled, I test whether relative earnings information itself influences effective labor supply and labor supply elasticity. Piece-rate workers shown their peer earnings standing provide significantly more labor effort. However, the productivity boost from earnings disclosure disappears when inequalities in the underlying piece rate exist. By cross-randomizing net of tax piece rates, labor supply elasticity with respect to the net of tax wage is also estimated. Unlike labor level, I find this labor elasticity is unchanged by the relative standing information. Taken together, these findings have direct implications for how to best model relative status concerns in utility functions, supporting some and precluding other common ways. More speculatively, they also suggest social comparisons could be strategically used to grow firm output or the tax base, and, that underlying inequalities in compensation schemes inhibit the ability of social comparisons to incentivize work.