Nathalie Ferrière : nathalie.ferriere[at]sciencespo-aix.fr
Federico Trionfetti : federico.trionfetti[at]univ-amu.fr
This paper develops a theoretical framework to think about employees' effort choices, and applies this framework to formally assess the ability of existing laboratory designs to identify the effect of pay inequality on worker effort. The analysis shows that failure to control for a number of confounds---such as reciprocity towards the employer in multi-lateral gift-exchange games (vertical fairness), or the incentive to increase effort when feeling underpaid under piece rates (income targeting)---may lead to inaccurate interpretation of evidence of treatment effects. In light of these findings, the paper provides a set of recommendations on how to improve identification in the design of laboratory experiments in the future.