The resilience of group cohesion to economic inequality

The resilience of group cohesion to economic inequality

Abstract:
Building on recent evidence that group cohesion is a powerful determinant of economic efficiency, we hypothesise that income inequality influences efficiency by altering cohesion, and that the direction of the effect depends on the nature of inequality. To test this, we employ a novel experimental design with extensive group interactions and a state-of-the-art technique to measure group cohesion. Our findings confirm that stronger group cohesion is indeed associated with more efficient interactions. We also find that group cohesion is significantly strengthened by inequality between groups, a mechanism overlooked in the literature to date. Furthermore, contrary to expectations, we do not find that pay inequalities within groups hinder the formation of group cohesion. These results suggest that interpersonal relationships display resilience to economic disparities, challenging the prevailing argument that inequality must be harmful to cohesion, and undermining a potential pathway through which inequality it could harm efficiency.