Organizational income inequality and precarious employment relations

Abstract

The topic of income inequality within organizations, or what top executives receive relative to rank and file workers, has received tremendous attention over the years from both the research community and the popular media. In this paper, we examine a heretofore ignored consequence of rising vertical income inequality within organizations. Specifically, building on theories of the psychology of social distance and power, we argue that high levels of vertical income inequality within firms result in poor employment relations such as executives willing to engage in mass layoffs. Further, we present findings from two studies that support this contention. In an archival study of public US corporations, we show that firms with high levels of vertical income inequality employ strategies such as layoffs. Consistently, in a laboratory experiment, we demonstrate that participants who are assigned to executive roles in a simulation and happen to experience high levels of organizational income inequality are more likely to layoff employees to meet quarterly goals. We discuss the implications of our findings for management theory and practice.