The gift exchange hypothesis postulates that workers reciprocate above market-clearing wages with above-minimum effort. This hypothesis has received inconclusive support in dyadic employer-worker relationships. We present a field-experimental test to assess this hypothesis in the context of a triadic relationship in which only one out of two workers receives a pay increase. We conjecture that inequality aversion motivations may thwart positive reciprocity motivations and analyze the interaction between such motivations theoretically. Across different treatments, the pay increase is assigned to the more productive worker in the initial work session, to the needier worker, or arbitrarily. Two additional conditions in which either none or both workers receive a bonus serve as benchmarks. We find that pay increases lead to decreased productivity. Such a decrease is most sizable in the condition where both workers receive the bonus. A post-diction of this result is that workers interpret the monetary bonus as a signal of the employer’s contentment with their effort, making them feel entitled to reduce their effort. In other treatments, receiving the pay increase while the coworker does not receive a pay increase positively affects productivity, primarily when the pay increase is due to relative productivity. This result is consistent with status-seeking preferences rather than aversion against advantageous inequality. Conversely, not receiving the pay increase while the coworker does, leads to lower productivity, primarily when the pay increase is assigned based on relative needs.
