Pay transparency, fairness perceptions and work effort: Experimental evidence from China

Abstract

In a field experiment in China, we informed randomly selected workers that they earned less than others for the same work, without providing any explanation. The informed workers perceived their pay as less fair, but, surprisingly, increased their average output without reducing quality. A post-experiment survey revealed that workers had benign explanations for the pay difference, with 58% attributing it to higher quality of the better-paid workers. Our results are validated by a follow-up survey of 1100 people of working age in China whom we briefed about our findings and asked for their explanations. 57% believed that the informed workers perceived their higher-paid peers to be better workers and aspired to match them. When asked what they would do in a similar situation, 75% replied that they would work harder as well. Our findings question the predictions of fairness theory and suggest the importance of cultural norms in shaping reactions to pay transparency.