Vertical versus Horizontal Pay Inequality Incentive Dichotomy

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In Simple Words

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.

Workers who underestimated supervisor pay

Own-pay reminder only
Comparison group
Supervisor pay disclosed
27% fewer household visits

Usual promotion rules; workers had underestimated pay. Six-month visits at ten-month follow-up. Actual pay stayed fixed; peer pay gaps were not tested.

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Research question

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.

Participants

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.

Study Design

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.

Results

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.

Takeaway

Distinguish vertical managerial pay gaps from horizontal peer salary disparities when evaluating employee responses to wage transparency.

Source and citation

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Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Randomized controlled trial

A study that uses chance, like drawing lots, to decide who receives each option being compared. Researchers compare the groups’ outcomes to estimate the effect of those options.

ExampleA lottery assigns volunteers to a training programme or a comparison group. Researchers then compare their outcomes.

GET-IT glossary · Randomized study ↗Read more about randomized controlled trial →

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