Effort, work hours, and income inequality: Three essays on the behavioral effects of wage inequality

Over the last 30 years income inequality in the U.S. has increased considerably. Partly because of this, there has been a surge in economics research devoted to understanding the causes and consequences of income and wage inequality. Most of the research, however, assesses individual preferences over inequality, rather than how the presence of inequality shapes behavior. This dissertation adds to the small but growing literature which analyzes the behavioral impacts of income inequality. In particular, this dissertation tests the effects of firm, occupation, and community wage inequality on worker effort, work hours, and job satisfaction. Chapter 1 uses the Panel Study of Income Dynamics linked to the Current Population Survey to investigate the impact of occupation and community inequality on individual weekly work hours. One of the primary limitations of chapter 1 is the inability to measure the correlation between effort and work hours and the inability to address demand constraints faced by workers. Chapter 2 uses a cross-section dataset, the 2004 wave of the Workplace Employee Relations Survey, to investigate these two issues. Both chapters test the claim put forth by others that wage inequality and work hours are positively correlated because of the incentive wage inequality generates to get a promotion. It is found, contrary to the existing literature, that there is at best a small negative correlation between inequality and work hours, and most likely no causal relationship at all. Chapter 3 further investigates the effects of wage inequality on worker effort hinted at in chapter 2. The primary goal of this chapter is to investigate any mitigating influences on the seemingly robust finding that effort and the expected return to promotion are positively correlated. There are two important findings. First, the positive correlation between the return to promotion and effort is very sensitive to how the return to promotion is measured. Second, the amount of control a worker has over her job and workplace significantly reduces the power of wage inequality for motivating worker effort. Taken together, the dissertation casts doubt on the use of wage inequality and promotion ladders to motivate workers