A new study suggests that if bosses want to increase productivity among their workers, they should start by paying everyone equally.
Economists from Columbia and Berkeley conducted 14 experiments at set of factories in India to study the effects of pay disparities on worker productivity, and found that the amount you get paid relative to your co-workers has a huge impact on how productive you are at work.
In the experiment, workers were divided into four units, each containing three workers: In the first unit (which the researchers called the Pay Disparity, or PD unit), each of the three employees was paid differently than the others. In the next three units, each of the three workers was paid the same as one another, at high, medium and low levels. These were called the compressed wages (CW) units. In all of the factories, managers kept the workers' pay a secret.
The results were shocking. By the end of the month-long experiment, 87.1% of the workers in the disparate pay units had found out how much at least one of their co-workers was being paid. And within about 5 days of learning of each other's wages, workers in the unequal units began to slack off, compared to the units in which workers were paid equally.
What's more, even the highest-paid workers in the unequal pay unit performed worse than the workers in the highly-paid CW unit. In other words, even if you know you're being paid more than your colleagues, you won't be more productive than someone who knows they're making the same amount as their co-workers.
"This could reflect the fact that working in close proximity to aggrieved workers (i.e., those earning less than their unit-mates) could be unpleasant due to hostility, resentment, or social awkwardness," the researchers write.
Here are the charts marking productivity over time. You can say that after day "0" (the day workers learned their pay) the red line, representing the unequal group, starts to dip compared with the blue line, representing equal-pay groups.
On average, output declined in the disparate pay unit compared to the equal pay units by 22%. Attendance also suffered in the disparate pay units; it was 11.5% lower than for individuals of the wage level in equal pay units.
Finally, the researchers used games and a survey to test the effect of cooperation, social ties outside of work, and general happiness. All suffered within units where workers were paid unequally.
The economists' main conclusion touched on what different types of firms should be paying their workers. They suggest that, at firms where labor is relatively simple, pay should be more standardized, even if managers have knowledge about skill differences among employees.
But while the researchers don't mention it, we all know that the real in-house wage differences are most likely to be between men and women. Which means that eliminating the gender pay gap (and other forms of pay disparity) isn't just the right thing for executives to do—it's also a way to boost productivity in the workplace.
Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.