The Unequal Career Consequences of Misconduct Disclosure: Evidence from Brazil’s Anti-Corruption Crackdown

• In Event: Organizational Drivers of Economic Inequality (Co-sponsored by Inequality, Poverty, and Mobility Section)

Abstract

Scholars have largely examined how organizational misconduct shapes the careers of elites, leaving a limited understanding of its consequences for lower-ranked employees. We address this research gap by developing and testing a dual-lens theoretical framework that conceptualizes organizational misconduct disclosure as both discrediting and reformative. On the one hand, disclosure can stigmatize employees through association with wrongdoing; on the other, it can destabilize inequitable organizational arrangements, potentially creating opportunities for upward mobility among workers at the bottom of the hierarchy. Using detailed firm-level microdata and Brazil’s major state-led anti-corruption crackdown as an exogenous shock, we find evidence consistent with this framework. Following misconduct disclosure, upper white-collar workers experience significant wage declines and are more likely to exit the formal sector. In contrast, blue-collar employees who remain in or re-enter formal employment experience large and persistent wage gains. These effects hold across gender and racial groups and remain robust across multiple specifications and checks. Together, our results point to a wage-leveling mechanism in which disclosure helps disrupt exploitative pay structures, reducing pay inequality within firms. Our findings reveal how misconduct disclosure, while punitive for some, can unintentionally benefit others by reshaping organizational hierarchies and redistributing economic rewards.

Authors

• Moksh Garg, Massachusetts Institute of Technology

• Emilio J. Castilla, Massachusetts Institute of Technology