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A Pay Change and Its Long-Term Consequences

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  • Miriam Krueger
  • Guido Friebel

Abstract

In a professional services firm, top management unexpectedly adjusted the pay of consultants in some divisions to the pay in other divisions. In this quasi experiment, fixed wages increased and bonuses decreased, reducing pay for the high performers and increasing it for the low performers. Individual outputs and efforts decreased by 30%, and attrition and absenteeism increased. The effects were driven by those who were rationally expecting to lose from the pay change. Observing a period of more than 3 years, we show long-term negative reciprocity of those affected but no negative selection effects of new hires.

Suggested Citation

  • Miriam Krueger & Guido Friebel, 2022. "A Pay Change and Its Long-Term Consequences," Journal of Labor Economics, University of Chicago Press, vol. 40(3), pages 543-572.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/717728
    DOI: 10.1086/717728
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    Cited by:

    1. Marco Fongoni & Daniel Schaefer & Carl Singleton, 2023. "When are wages cut? The roles of incomplete contracts and employee involvement," AMSE Working Papers 2303, Aix-Marseille School of Economics, France.
    2. Gall, Thomas & Hu, Xiaocheng & Vlassopoulos, Michael, 2023. "Incentivizing Team Leaders: A Firm-Level Experiment on Subjective Performance Evaluation of Leadership Skills," IZA Discussion Papers 16123, Institute of Labor Economics (IZA).

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