Equal pay 'penalises hardest workers'

It argues that real fairness means that companies and organisations should pay staff according to how hard and well they work.

And it warned that organisations which put the dogma of equal pay for those doing similar jobs into practice risk disastrous collapses in productivity and morale among their staff.

The findings, presented to a Royal Economic Society conference, throw a major question mark over the ambition of paying workers equally that has governed the thinking of public sector employers and the courts for more than a decade.

It comes as council tax payers face the prospect of increases in their bills of more than £300 each to finance town hall equal pay deals which will mean women workers like school dinner ladies must be paid the same as male employees like dustmen.

Ministers remain committed to the idea of closing the "pay gap" between men and women, held to be unfair because over a lifetime women workers are likely to earn around 18 per cent less than men.

But if the study unveiled yesterday by German academics at the meeting in Warwick is correct, chasing equal pay targets may have contributed to years of falling productivity in the public sector which means taxpayers are getting less value for money from the Health Service, councils, and state agencies.

Research Steffen Altmann said: "Equal wages are perceived as unfair by highly motivated employees. Consequently, they may lead to discouragement and a strong decline in work performance.

"In a world where workers differ in their skills and performance, fairness also calls for unequal pay for unequal work."

The study is based on an experiment in which 144 students who were given roles as employers and workers. Each employer was given two workers, each of whom could decide how hard to work.

Half the employers were allowed to pay whatever they thought right. The others were compelled to pay their two workers the same amount.

The study reported: "While the participants who were paid individually achieved almost the highest possible performance level, those who worked under equal wages produced hardly half as much.

"In addition, their performance got worse over time."

It found that 85 per cent of the experimental employers with the freedom to pay whatever wages they thought right modified their pay rates to give more to the best worker.

But, the study said, "this norm was almost always violated under equal wages. As a consequence, high-performing agents who received the same wage as their lazier co-workers reduced their work effort.

"The reactions of the employees show that workers who were in principle willing to exert high efforts got discouraged by the equal pay."

The researchers suggested that companies and organisations tied to equal pay systems should find ways to motivate staff that do not involve cash, for example by offering extra holidays or gift awards.

Current controversy over equal pay deals centres on agreements reached in the 1990s between town halls and unions to end differentials between jobs done mainly by women and better-paid work done mainly by men.

A series of legal cases funded by no-win no-fee lawyers who have trawled for custom among women council workers have resulted in European judgements that mean low-paid women must get more from this month. They must also be given pay awards backdated for six years.

The cost to teapxyers is likely to reach £5 billion this year and £700 million a year in future - the equivalent of more than £300 on this years's average English Band D council tax bill. New legislation also gives public sector workers the right to ask for details of colleagues' pay in the interest of 'gender equality' between workers.