Illustration from a 1916 advertisement for a vocational school in the back of a US magazine. Education has been seen as a key to higher income, and this advertisement appealed to Americans’ belief in the possibility of self-betterment, as well as threatening the consequences of downward mobility in the great income inequality existing during the Industrial Revolution.

Why the French want less income inequality than the Americans: The role of just-world beliefs in cultural differences in preferences for performance pay or redistribution.

INSEAD, the leading international business school, and the School of Business and Economics at The Catholic University of America (CUA) announced the publication of an article revealing that individual preferences for wage and income inequality are partly based on different cultural beliefs about whether the world is inherently fair and people get what they deserve. Co-authored by INSEAD Professors Klaus Wertenbroch and William W. Maddux and Douglas H. Frank at CUA’s School of Business and Economics and INSEAD, the article focuses on how individuals’ “just-world beliefs” (JWBs) affect how much wage inequality they endorse.

This research question is timely. Since the financial crisis of 2008, the question of high levels of executive pay and the growing gap between the highest and the lowest earners has been pushed to the top of political and social agendas, most famously by Thomas Piketty in “Capitalism in the 21st Century”. Following on this theme, the paper explores the cultural influences that multinational companies need to consider when establishing pay incentive systems in companies around the globe. Building on previous research on cultural attitudes toward tax redistribution and social spending, this is the first time a study has sought to demonstrate that attitudes about wage inequality and individual employee compensation schemes are driven by different just-world beliefs. “There is no universal answer as to what amount of wage inequality is fair. It depends on cultural views of whether the world is inherently just or whether individual success is driven by more by luck,” said Klaus Wertenbroch, co-author of the report and professor at INSEAD.

The results confirm that cultural differences in just-world beliefs do influence preferences for compensation systems. For example, French participants preferred significantly less income inequality than the Americans, who were more likely than the French to believe in a just world. In addition, the study shows that JWBs help cause and shape these differences, even when the culture is held constant but manipulated in an experimental setting. “Different values or economic conditions are not the only factors that influence compensation preferences; deeper cognitive differences in beliefs about the justness of the world also come into play,” said William W. Maddux, co-author of the report and professor at INSEAD.

“The meaning of social justice is markedly different for cultures driven by an effort- and merit-based ethic or those driven by a policy of sharing and redistribution,” said Douglas H. Frank, co-author of the report and professor at CUA and INSEAD. “We show that behind these cultural differences are different beliefs about how the world works. To someone who believes that success and failure depend mainly on luck, reducing wage inequality seems fundamentally fair.”

The article’s release serendipitously coincided with the historic visit of Pope Francis to the US, and to The Catholic University of America on September 23. Pope Francis has brought issues of social justice and economic inequality to the forefront of his papacy and helped to intensify attention to these concerns.

In three empirical studies, the authors asked participants to carry out a series of tests to establish:

i) whether just-world beliefs influenced preferences for compensation policies among different nationalities;
ii) whether participants from France and the United States, two countries that strongly differ in their overall just-world beliefs, differ in their compensation preferences;
iii) The role of just-world beliefs in causing these preferences for (in) equality.

The report adds new insight into the differences in cultural perspectives and can help managers and policy-makers devise compensation and redistribution schemes that are adapted to each cultural context. Furthering INSEAD’s commitment to give decision-makers the tools they need in the global business world, it fosters greater understanding of the impact of just-world beliefs on wage compensation preferences by showing the cultural and international differences at the microeconomic level.

Source: INSEAD