How Do I Compare? The Effect of Work-Unit Demographics on Reactions to Pay Inequality

J. Adam Cobb, McCombs School of Business, University of Texas, Samir Nurmohamed, Management, The Wharton School, and JR Keller, The ILR School, Cornell

Industrial and Labor Relations Review, April 2021

Abstract: Prior research suggests that individuals react negatively when they perceive they are underpaid. Moreover, individuals frequently select pay referents who share their race and gender, suggesting that demographic similarity affects one’s knowledge of pay differences. Leveraging these insights, the authors examine whether the gender and racial composition of a work unit shapes individuals’ reactions to pay deprivation. Using field data from a large health care organization, they find that pay deprivation resulting from workers receiving less pay than their same-sex and same-race coworkers prompts a significantly stronger response than does pay deprivation arising from workers receiving less pay than their demographically dissimilar colleagues. A supplemental experiment reveals that this relationship likely results from individuals’ propensity to select same-category others as pay referents, shaping workers’ information about their colleagues’ pay. The study’s findings underscore the need to theoretically and empirically account for how demographically driven social comparison processes affect reactions to pay inequality.

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