Unequal Pay Isn’t Always Seen As Unfair. Here’s What Makes The Difference

People Accept Pay Gaps Far More When They’re Earned

Two coworkers finish the year with very different paychecks. One landed the bigger check in a random draw. The other earned it through harder, better work. The gap is identical, yet a 60-country study shows how differently people treat the two. Whether a gap was earned shifted tolerance for it about six times more than whether evening it out would waste money.

Researchers asked more than 65,000 people, in countries home to about 85 percent of the world’s population, to act as judges in a real-money experiment, deciding how to split extra pay between two workers. According to the paper in The Quarterly Journal of Economics, judges left 85 percent more inequality in place when the gap came from merit than when it came from luck. When evening out luck-based pay came with a steep price, judges left only 14 percent more inequality in place than when it was free.

That matters because arguments over taxing the wealthy often center on whether higher taxes would discourage work and investment. In this experiment, a steep cost moved judges far less. An older question moved them more: did this person earn it, or get lucky?

Experiment Shows People Accept More Income Inequality When Pay Is Earned

Gallup surveyed a representative group of at least 1,000 people, age 15 or older and roughly balanced between men and women, in each of the 60 countries, from Malawi to Switzerland and Norway to China.

Each judge ruled on one pair of workers hired online to do the same task. Both got base pay, but only one would receive an extra $6, scaled to local buying power. The judge could leave that split alone, partly even it out, or make it equal, and workers were paid accordingly.

Judges were randomly handed one of three backstories. In one, a random draw picked who got the extra pay. In another, the more productive worker got it. In the third, luck decided again, but half of any money moved between the workers would vanish.

When luck decided, about 61 percent of judges split the extra pay equally. When the more productive worker earned it, only about 26 percent did, and most left the gap alone.

Men, and people with more education or income, reacted more sharply to the merit story, but every group and nearly every country followed the same pattern, as did a follow-up with 1,517 Americans who had to give up a little of their own money to redistribute.

Income Inequality Views Split Into Three Camps Around the World

Norway showed the least tolerance for luck-based gaps, with a large majority choosing an equal split, while China showed the most, with a large majority leaving the gap alone. That divide narrowed when merit entered the picture, and the United States, middle of the pack under luck, jumped to among the most accepting countries.

Based on judges’ choices, the researchers sorted people into three camps. Libertarians, about 37 percent, accept earnings however they arise. Meritocrats, also about 37 percent, accept inequality only when it reflects hard work or skill. Egalitarians, just over a quarter, favor equal outcomes regardless. In most countries, no camp held a majority.

Meritocrats were more common in richer, more individualistic, more democratic countries. Libertarians held the majority in 14 countries, including China and India. The authors suggest that China’s emphasis on respecting personal boundaries may make people less inclined to erase existing gaps, and that the concept of karma in India, the idea that present circumstances reflect past actions, may help explain tolerance for luck-based inequality.

Many Richer Countries Value Merit but Doubt the Rich Got There by Hard Work

Around the world, more people said luck is a main reason the rich are richer than the poor (46 percent) than said hard work or ability is (30 percent). Richer Western countries held stronger meritocratic values yet were less likely to believe hard work is why the rich in their country got rich.

That mix may explain why countries that prize merit can still back redistribution. Someone who believes the rich got there through luck can use the merit principle to argue for evening things out. Belief in an economic cost was weak: about 47 percent disagreed that higher taxes would make the rich work and invest less, while 38 percent agreed.

Participants who left more inequality in place in the experiment, and those who put more stock in merit, were less likely to call inequality in their country unfair.

Across countries, fairness views and beliefs about why the rich are richer were the strongest links the researchers found to how much governments redistribute, though such links are not proof of cause. The United States stands out: it was among the most polarized countries on redistribution, and views on whether inequality is fair predicted support for it more strongly there than anywhere else.

American arguments over taxing the rich may be disagreeing less about numbers than about what counts as earned. Until that question is on the table, cost arguments are likely to keep missing the point.

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