Vertical versus Horizontal Pay Inequality Incentive Dichotomy
RCTClinical Trial
Personnel economics literature on workplace pay inequality has traditionally focused on horizontal salary disparities among peers in identical tiers, whereas vertical pay gaps between supervisors and subordinates create dynamic career incentives that interact with promotion fairness.
Picture this
Comparing your salary to a coworker at the same desk who gets paid more for the same job creates jealousy and frustration, but seeing your supervisor earn a larger salary creates an appealing prize to work toward—provided the ladder to reach that position is based on merit rather than favoritism.
What the evidence says
Disclosing steep vertical pay progression generated strong incentive effects (+23% visits; p < 0.05) under meritocracy but negative morale effects (-27% visits; p < 0.01) under non-meritocracy, demonstrating that vertical pay gaps operate through dynamic career tournament mechanics rather than horizontal peer fairness comparisons.
- Who was studied
- N = 2,009 Community Health Workers earning 150,000 SLL/month and 372 Peer Supervisors earning 250,000 SLL/month across 372 Peripheral Health Units in Sierra Leone.
- How
- Field experiment / Randomized Controlled Trial (RCT) evaluating vertical pay progression disclosures (67% supervisor salary premium; 2.7x hourly wage gap) in a multi-tiered organizational hierarchy, contrasted with peer horizontal wage comparison models.
What to do
Distinguish vertical managerial pay gaps from horizontal peer salary disparities when evaluating employee responses to wage transparency.
From the source
"In contrast to these studies, and in line with Cullen and Perez-Truglia (2022), we shift our attention to vertical pay inequalities between upper- and lower-tier workers for which the theoretical predictions are less clear."
Promotions_and_Productivity_The_Role_of_Meritocracy_and_Pay_Progression.pdf