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Inequality and business.

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INEQUALITY AND ORGANIZATIONS

Hari Bapuji1 Asper School of Business University of Manitoba

Winnipeg, MB Canada R3T 5V4 Phone: 204-474-8432

E-mail: [email protected]

Sandeep Mishra Faculty of Business Administration

University of Regina Regina, SK Canada S4S 0A2

Phone: 306-585-4783 Email: [email protected]

Forthcoming in: Mir, R., Willmott, H., & Greenwood, M. (Eds.), 2015. Companion to Philosophy in Organization Studies. Routledge.

1 Both authors contributed equally to this chapter.

INEQUALITY AND ORGANIZATIONS

Over the course of human history, philosophical thought on inequality has

shifted from a predominantly hierarchical understanding of human ability and output

to a much more egalitarian understanding. This progress has been reflected in the

rich modern social science literature documenting the far-reaching societal ills of

inequality. Organizational research has, however, remained relatively unmoved by

the wider discourse on inequality. Through this chapter, we seek to highlight the

growing importance of examining inequality in the context of organizations.

Specifically, we discuss inequality research by examining it from the perspective of

distributive justice. We then outline the adverse consequences of inequality to

societies and organizations. We conclude by discussing the need to critically

examine inequality and to study why it is maintained in organizations and societies,

despite its adverse effects.

Keywords: Economic inequality, income inequality, distributive justice

A (Brief) History of the Philosophy of Inequality

Inequality, broadly conceived, describes the degree to which people are considered or

treated unequally, or experience unequal outcomes. Inequality can be considered in several

domains: moral (are all people equal in worth or value?), legal (are all people governed by the

same laws?), political (do all people have the same voice in the political process?), and social (do

all people have equal access to opportunity and resources?). Philosophers have been debating the

nature of inequality for centuries. A comprehensive review of the various philosophical

approaches to understanding inequality would require many volumes; however, it is possible to

briefly follow patterns of philosophical thought on inequality over time.

Plato argued that a utopian society could be established by placing people into four tiered

socioeconomic classes: “gold”, “silver”, “bronze”, and “iron”. Those with the power of

command were argued to have been made of gold by “God”, auxiliaries made of silver, and

husbandmen and craftsmen made of bronze and iron. Although rigidly hierarchical, Plato’s

concept of societal hierarchies was one of the first to not include an ultimate aristocratic class.

Rather, he argued that “gold” citizens were “philosopher kings” who valued wisdom and reason

above all else (Jowett, 1888)2. The Enlightenment brought further philosophical considerations

of inequality. Rousseau considered moral inequality to be of great importance (as opposed to

natural/physical inequality). He argued that moral inequality is a defining characteristic of civil

society and is strongly associated with downstream differences in power and wealth. Rousseau

concluded that civil society distorts the natural human state of isolation, which allows individuals

to satisfy their own needs (and desires) without the interference of others. He further argued that

civil society allows the powerful to control the weak and maintain their political and social

power and wealth (an argument still made by some contemporary philosophers and economists).

Rousseau argued in one of his later writings, “…one of the most important tasks of government

[is] to prevent extreme inequality of fortunes…by shielding citizens from becoming poor”

(Gourevitch, 2003, p. 19).

2 Interestingly, a very similar social structure exists in the form of the Indian caste system, with the argument being that “God” created people of four types from His own body: Brahmins (philosophers) from his mouth, Kshatriyas (warriors) from his arms, Vaisyas (traders) from his thighs, and Sudras (craftsmen) from his feet. In modern India, the caste system holds significant influence (even though it is formally outlawed), where one’s family history (i.e., last name in most cases) dictates social and economic roles, as well as hierarchical status.

In the modern era, John Rawls (1971) advocated for a societal structure based on the

assumption of a “veil of ignorance”—that “we should try to create the society each of us would

want if we didn’t know in advance who we’d be” (Krugman, 2011). Rawls put forth two

principles to support this approach. First, a society should guarantee equal basic liberties for all.

Second, a society should ensure (a) social and economic inequality only manifests as a

consequence of positions that can be obtained through fair and equal competition, and (b)

inequality should be used to most greatly benefit the least-advantaged members of society. Most

liberal democracies have used (and continue to use) Rawlsian principles to structure their

societies (e.g., utilizing a progressive income tax to provide a social safety net). Amartya Sen

(1992) further expanded on Rawls’ ideas by arguing that a well-structured society must mitigate

any forms of discrimination that limits human “functions”, which include both basic needs (e.g.,

good health and shelter) and social needs (e.g., self-respect and dignity; Sen, 1992).

The Modern Issue of Inequality

Recent rising levels of economic inequality in the world have demanded considerable

public attention. The rapidly increasing concentration of wealth in the hands of a few has been

documented by researchers (e.g., Piketty, 2014), government agencies (e.g., the United States

Congressional Budget Office; CBO, 2014), non-government agencies (e.g., Oxfam International;

Oxfam, 2014), international economic organizations (e.g., Organization for Economic Co-

operation and Development; OECD, 2011), pollsters (e.g., Newport, 2011), industry bodies (e.g.,

Conference Board of Canada; CBOC, 2013), and the popular press (Beddoes, 2012), among

others. The existence of inequality is neither new nor unknown; indeed, differences in wealth and

status have been characteristic of most civil societies for all of documented history. However,

current attention has been particularly focused on identifying the negative consequences of

inequality in modern western industrialized nations. This attention has included growing

discussion on interventions that might mitigate the enormous negative consequences of a

growing disparity between “haves” and “have-nots”. This effort is particularly salient given that

modern western industrial societies supposedly embody the ideals of meritocracy and equal

opportunity for all. That inequality continues to rise, unchecked, raises questions about the

effectiveness of economic development to create fair and just societies.

Scholars in a number of disciplines, including economics, epidemiology, sociology, and

psychology, have devoted much attention over the years to understanding the causes and

consequences of growing inequality to societies (reviewed in Neckerman & Torche, 2007).

Much of this research has led to public policy prescriptions designed to reduce inequality (e.g.,

introducing progressive taxation; universal health care; accessible education). However,

academic discourse (and resultant policy) has rarely involved organizational research or practice,

even though organizations play a fundamental role in creating and maintaining societal

inequality.

Philosophical understandings of inequality over time (briefly reviewed above) have

shifted from earlier characterizations of people being rigidly hierarchically structured (usually

due to some “innate” reasons) to a more egalitarian understanding of all people being granted

ample opportunity to fulfill their potential. Although a large body of research has examined the

effect of inequality on societies and individuals, little work has been conducted in the field of

organization studies. This chapter aims to draw attention of organizational scholars to this issue.

We begin by briefly discussing the concept of inequality and its treatment in management

research and practice. We then outline some consequences of inequality to societies and

organizations. We conclude with a discussion of potential future research that would allow for a

better understanding of the causes and consequences of organizational inequality.

Inequality in Organizational Research and Practice

What is Organizational Inequality?

Within organizational research and practice, two broad types of inequality can be found:

demographic and economic. Demographic inequality describes disparities in experiences or

outcomes that have a basis in demographic characteristics (e.g., gender; race; age). Broadly,

economic inequality describes disparity that is a consequence of the monetary value attached to

the possessions and contributions of individuals in organizations and societies.

Gender inequality refers to unequal treatment (i.e., experiences and outcomes) of women

in society as well as in organizations. Gender inequality research has not only highlighted the

different outcomes and experiences women face in their everyday social lives (compared to

men), but has also identified significantly lower representation of women in various fields

(ranging from science to politics), the disparities in incomes between women and men for

comparable work, and the “glass ceiling” that prevents women from rising to higher-level

positions.

Along similar lines, racial inequality reflects unequal treatment of people based on race,

with resultant disparities in social and health outcomes (e.g., housing, education, health) as well

as economic and organizational outcomes (e.g., income, employment, career growth). More

recently, acknowledgement of systematic biases against sexual minorities has sparked public

discourse, with (in more progressive jurisdictions) resultant policy prescriptions for equal

treatment. A number of organizations have also adopted policies to this effect, while those who

opposed equal treatment of sexual minorities have (largely) faced the wrath of the broader

community. Yet another fast emerging topic of debate is unequal economic opportunities for

younger members of society (i.e., the much-maligned “millenial” generation), especially in

comparison to older generations (i.e., the more economically privileged “baby boomer”

generation).

Past research has used economic inequality to refer to disparity in the distribution of

economic assets among individuals or households in a society, which includes both income and

wealth inequality. The former refers to the disparities in money received on a regular basis in the

form of salaries, rents, royalties, dividends, and other sources of regular income. The latter refers

to uneven distribution of wealth (i.e., mobile assets such as stocks and bonds, and immobile

assets such as houses and land). That is, wealth describes the stock of assets held at a given

point, while income describes the flow of money on a regular basis. It should be noted that

economic inequality is different from poverty, which refers to the lack of economic means to

fulfill basic human needs or to achieve a defined level of material possessions. In other words,

poverty is about meeting basic needs, whereas economic inequality places in focus the

unevenness in the distribution of income and wealth, irrespective of the presence and absence of

poverty.

Inequality and Distributive Justice

Before we address the issue of inequality in organizations more explicitly, it is necessary

to situate inequality in the broader context of distributive justice. Distributive justice describes

norms concerning the distribution of resources to group members. These norms take three

primary forms: need, equity, and equality (Deutsch, 1975). Need norms involve the allocation of

resources to those who have high levels of need. For example, that new parents receive paternity

or maternity leave whereas non-parents do not receive an equivalent form of leave reflects a need

norm. Equity norms are centered on the comparison of individuals’ inputs (e.g., education,

experience, skills, hard work) to outputs (e.g., pay, status, time off) relative to appropriate others

(e.g., other organization members, others in the same position at other organizations). For

example, most people see it as fair that doctors are paid generously compared to most other

occupations because doctors hold difficult positions requiring substantial training, expertise, and

personal sacrifice. In other words, doctors provide greater inputs and thus receive more outputs

as a consequence. In contrast to need and equity, equality focuses on the degree to which

outcomes experienced are equal, regardless of inputs or need. For example, all employees at a

worker co-operative may be paid equally regardless of their role in the organization. This

distribution norm is based on the assumption that individuals, given their skills and opportunities

available to them, contribute uniquely to an organization and such unique contributions cannot

be accurately compared and definitively assigned a monetary value. Further, the equality norm is

also rooted in the perspective that all human beings are equal and deserve similar rights and

entitlements.

The three distributive justice norms—need, equity, and equality—were theorized by

Deutsch (1975) to be evoked by different (but not necessarily independent) organizational goals.

Economic productivity should be most associated with equity norms, individual development

with need norms, and social relationship building with equality norms (Deutsch, 1975). Because

modern organizations typically emphasize economic productivity above all other goals, research

on organizational distributive justice has focused almost exclusively on equity issues (e.g.,

Colquitt, Conlon, Wesson, Porter, & Ng, 2001; Deutsch, 1975). Furthermore, the dominant

distributive justice literature has focused almost exclusively on the distribution of economic

resources and outcomes, namely, pay, promotions, and bonuses. However, other workplace

resources and outcomes—such as status, power, influence, and respect—are also key

components of people’s workplace experiences, and the distribution of these resources should

have broad effects on organizational outcomes.

Another key issue with canonical research on distributive justice is its focus on the effect

of (primarily economic) outcome distributions determined by group membership and social

identity. Research examining the effects of gender, ethnic, and class inequalities has been quite

common, and a large body of evidence suggests that inequality across group identity has clear

and serious negative effects. Essentially every individual-level workplace experience or outcome

is worse, on average, for women and ethnic minorities. These outcomes include lower pay,

poorer mental and physical health, lower well-being, lesser feelings of empowerment and

autonomy, lack of organizational mobility, and lower organizational attachment (e.g., Greenhaus,

Parasuraman, & Wormley, 1990; Tsui, Egan, & O’Reilly, 1991). These effects are particularly

ironic given that greater racial and gender disparity in organizations is associated with increased

sales revenue, greater profits, more customers, and increased market share (Herring, 2009).

One important caveat is that inequality in organizations may reflect pre-existing

inequality outside of organizations, and may not itself be a product of organizational policy or

management decisions. Consider ethnic differences in educational attainment. In the United

States, African-Americans and Latinos are less likely to have completed high school, and as a

consequence, less likely to have completed any post-secondary education (or even had the

opportunity to attend a post-secondary institution at all). In Canada, aboriginal people experience

the same lack of opportunity. These educational inequalities lead to a lack of hiring into positions

that might allow for upward mobility, with the consequence that marginalized groups are less

able to gain important workplace experience. As such, certain groups necessarily have fewer

“inputs” to offer an organization (through no fault of members of these groups), and may suffer

the many consequences of inequality as a result. Later in this chapter, we describe some research

on the consequences of societal inequality.

In sum, the study of inequality in organizations has predominantly focused on group

membership and social identity at the expense of the more general phenomena of skewed

distributions of outcomes and resources. That inequality manifests and has negative effects

across easily identifiable group memberships is not particularly surprising. However, those who

are victims of inequality suffer negative effects in the workplace regardless of their group

membership or social identity. A broader focus on the root causes and consequences of

inequality may lead to new insights for organizational research and practice above and beyond

the group identity based research done to date.

Consequences of Inequality

Societal Consequences of Inequality

A large body of evidence demonstrates that high levels of income inequality at the

societal level facilitate a wide array of negative social, health, and well-being outcomes. In the

social domain, inequality has been strongly linked with higher rates of teenage pregnancy, lower

social capital, community support, and trust, as well as increased violent and property crime,

including homicide (reviewed in Wilkinson & Pickett, 2006, 2007, 2009). Societal inequality has

also been strongly linked to diverse health and well-being outcomes. Specific physical ailments

such as obesity and cardiovascular illness (among others) are associated with inequality, as are

more downstream outcomes such as greater general mortality and lower life expectancy. In the

mental health domain, inequality has been linked with depression, stress, and a variety of other

psychopathology (reviewed in Wilkinson & Pickett, 2006, 2007, 2009).

Importantly, these negative effects of inequality have been demonstrated independent of

individual-level socioeconomic status and aggregate economic measures (e.g., gross domestic

product; Kennedy, Kawachi, Glass, & Prothrow-Stith, 1998; reviewed in Wilkinson & Pickett,

2009). These results suggest that what is key is relative standing, not absolute standing. This is

an important point to emphasize: inequality appears to affect outcomes for all individuals, not

just those who are the bottom of a hierarchy (e.g., Weich, Lewis, & Jenkins, 2001; reviewed in

Wilkinson & Pickett, 2009). Everyone in a society is subject to relative comparisons, and

knowing that there is great disparity among others is damaging, regardless of whether one is at

the top or the bottom. For example, it is better to be poor in more egalitarian Scandinavian

countries than rich in less egalitarian countries with regard to a wide array of social, health, and

well-being outcomes. Together, these findings suggest that there is something important about

inequality above and beyond absolute individual-level outcomes. It is clear that inequality at the

societal level has substantial and robust social, health, and well-being effects on individuals.

It is important to recognize that almost all research at the societal level on inequality has

focused on examining the effects of income inequality manifesting at the household level. This is

likely because income inequality is relatively easy to identify and quantify using such measures

as the Gini coefficient, which is a measure of the distribution of wealth among households in a

population. However, as described earlier, inequality manifests not only in terms of financial

currency, but also in terms of other resources and opportunities that are of general importance to

people (e.g., social status, prestige, power, and/or influence). We therefore suggest that

inequality writ large—that is, inequality in resources, status, reputation, and influence—should

have impacts at the societal, organizational, and individual levels. The mechanisms that link

inequality to various outcomes should be conserved regardless of what domain inequality

manifests in. Some preliminary research suggests that disparities in different domains (i.e., not

just income) affect relevant outcomes at the organizational level. We briefly review this evidence

below.

Organizational Consequences of Inequality

Organizations are in effect “mini” societies, in that they involve collections of people

who interact in a structured community with shared institutions, relationships, and a common

culture (Macionis, 2014; Schaefer & Moos, 1993). Just like larger societies, organizations

involve varied social structures, policies, and norms, with consequent status, power, income, and

resource disparities. These disparities—manifestations of inequality—should have workplace

consequences for workers, just as societal-level inequality has consequences for individuals in

higher-level communities. Remarkably little research, however, has directly examined the effect

of inequality on organizational outcomes, although some research is suggestive.

In the workplace, inequality can manifest as a consequence of objective disparities in

outcomes (e.g., pay dispersion, hierarchical complexity; e.g., Carillo & Kopelman, 1991; McCall

& Kenworthy, 2009) or as a consequence of perceived or subjective interpretations of disparities

in outcomes (e.g., perceptions of equality-related distributive justice/fairness; e.g., Bartunek &

Keys, 1982; Spreitzer, 1995). Components of both objective disparity and subjective perceptions

of disparity have been associated with negative outcomes in the workplace, (e.g., organizational

fairness and justice, participative climate, and empowerment). More specifically, these

components of inequality have been associated with diverse negative organizational outcomes:

reduced social capital, including less cooperation, trust, and mutual support (e.g., Tyler and

Blader, 2003), lower commitment (e.g., Meyer, Stanley, Herscovitch, & Topolnytsky, 2002),

lower psychological empowerment (e.g., Spreitzer, 1996), poorer well-being and health (e.g.,

Christie & Barling, 2010; Danna & Griffin, 1999), and lower performance (e.g., Christie &

Barling, 2010).

Together, these findings are highly suggestive of a link between organizational inequality

and workplace outcomes, although it is important to note again that very little research has

directly examined the influence of inequality (either objective or perceptual) on relevant

workplace outcomes (but see Son Hing, Mishra, Yip, & Garcia, working paper). It is likely that

other organizational analogues of societal-level outcomes—for example, counterproductive work

behavior (a form of antisocial and risk-taking behavior more generally) and organizational

citizenship behavior (a consequence of trust and social capital) are likely affected by inequality

as well.

Outcomes that have been linked with organizational inequality—lower social capital,

poorer health and well-being, lower commitment, and lower empowerment—are in turn linked

with higher rates of absenteeism and turnover, and lower motivation and performance (reviewed

in Johns & Saks, 2014). All of these downstream outcomes have enormous economic

implications for organizations. Not surprisingly, it has been argued that economic inequality

affects organizational performance by influencing the attitudes and behaviours of individuals,

workplace interactions they engage in, and the institutional environment that shapes

organizational actions (Bapuji, 2015). Therefore, addressing issues of inequality can be

considered not only an issue of justice, but also an issue of financial and economic relevance to

organizations (and to society more generally).

In sum, research in disciplines ranging from economics to epidemiology has shown that

inequality has deleterious consequences for individuals and societies. By extension, these

consequences are also likely to affect organizations, a point borne out by some suggestive

evidence within organizational research. However, substantial additional research is required to

better understand the effect of inequality on organizations; we suggest some potentially fruitful

future directions below.

Inequality and Organizations: Future Directions

Very little research has examined the effect of inequality on and within organizations.

Accordingly, a number of questions are ripe for research, ranging from how inequality affects

organizations to how organizations affect inequality, and what various stakeholders can do to

address inequality. In this section, we focus on two promising areas of inquiry. The first is aimed

at better understanding inequality and its workplace consequences; the second is focused on

understanding maintenance of inequality in organizations.

Understanding Inequality and the Bias Against Equality

Past organizational research has shown that women and ethnic minorities experience

worse workplace outcomes. The most common explanation for such inequality is systematic

prejudice and discrimination stemming from in-group/out-group comparisons (i.e., social identity

comparisons; Tajfel & Turner, 1979). However, inequality based on group membership and/or

identity necessarily involves inequality in the distribution of resources in the workplace: pay,

promotions, status, power, influence, and respect, among others. It is therefore possible that the

key variable that explains poorer organizational outcomes for women and minorities is inequality

in resource allocation, not necessarily group identity. Put another way, it is possible that if

inequality in resources in the workplace were ameliorated, we would not observe systemic group

or social identity effects. Following this line of thinking, it is likely that those who are at bottom

of an inequality hierarchy—regardless of social or group identity—suffer worse outcomes. As a

consequence, we suggest that organizational scholars would benefit from more deeply exploring

whether inequality in resources independent of group membership or social identity has

important social, health, and productivity consequences in organizations. Of course, inequality of

resources necessarily interacts with (and is in large part a cause of) group-based inequality,

which makes its study even more important.

The above distinction highlights that inequality has been examined as an outcome

experienced by some organizational members. The issue of distribution of resources, or unequal

access to opportunities, however, has largely escaped the attention of organizational scholars.

Without consideration of inequality in opportunity, no amount of research focused on

inequalities in outcomes can fully explicate inequality experienced by disadvantaged groups.

Much of the research that has been conducted to date examining inequalities in rewards along

demographic lines has served to describe and highlight the problem. However, this research has

not (and cannot) address underlying causes that perpetuate inequalities (e.g., social structures or

ideologies). Productive advances can be made by understanding inequality derived from both

access to opportunities (e.g., skill development, education, health) and rewards for production

(e.g., pay, status, career progression).

The discussion above brings to the fore the contentious issue of accepting equality as a

guiding norm of fairness in organizations. The vast majority of organizational research on

inequality has been centered on understanding the equity norm. Under this view, pay and status

disparities as a consequence of gender or race are clearly unacceptable as long as individuals

possess similar skills, education, experience, and/or capabilities. In contrast, the equality norm

assumes that all people are equal and bring equal value to the production process, independent of

the type of skill, experience, capabilities, or education contributed. Accepting this norm runs

firmly counter to the predominant business paradigm of rewarding members based on the

economic value of their inputs (i.e., as a consequence of supply and demand, or credentialing). A

shift from a focus on equity to equality thus calls for a fundamental shift in thinking. At the very

least, this shift calls for reflecting on the value of various inputs into the production process, and

the socio-political nature of such assessment.

Maintenance of Inequality

Given the ubiquitous and wide-reaching effects of inequality, why is it maintained?

Perception of a just, meritocratic system likely plays an important role. The job market is

typically seen as an independent arbiter of talent and dedication—those who work hard and have

the best skills will get hired for the best positions in the best organizations. In this sense,

organizations actively foster inequality through sorting of those who are deemed to be

meritorious of resources and status and those who are not (Cobb, in press). This process reflects

the equity norm that defines organizations driven by economic concerns. However, this process

also necessarily facilitates inequality. Any time a process sorts “winners” and “losers” –

regardless of whether there is a rational reason for doing so – there will be resultant inequality.

This tension presents a large problem for organizational and societal policy. As reviewed

above, inequality has a slate of negative impacts at both the societal and organizational level.

However, a market economy also requires incentives that spur striving and greater performance.

A key problem is that the balance between incentives for upward striving and minimization of

unjust inequality has become deeply unbalanced in the last few decades. Disproportionate gains

have been realized by the richest in society, and these gains are in large part a consequence of

organizational policy and decision-making. Chief executive officer (CEO) pay has soared

astronomically, while those in the lower rungs of organizations have realized take-home pay

losses after accounting for inflation (e.g., McKenzie, 2012).

Complicating any policy response to inequality are psychological variables that lead

people to favor the status quo. Even in the wake of movements like Occupy Wall Street and

increased attention on the societal harms of inequality, public opinion polling suggests that

typical citizens do not place much of a priority on addressing economic inequality (e.g.,

Newport, 2011). Even those at the bottom of the socioeconomic ladder—those most adversely

impacted by inequality—do not strongly prefer more equal distributions of income and wealth

(Norton & Ariely, 2011). System justification theory suggests that people are motivated to

defend and justify the status quo, which almost always involves high levels of inequality. The

theory specifically suggests that in order to minimize cognitive dissonance, people espouse and

support views that the system is just, fair, and meritocratic (reviewed in Jost, Banaji, & Nosek,

2004). Together, the lack of interest in inequality-related policy and psychological mechanisms

that support the status quo make it difficult to enact change that reduces the negative impacts of

inequality.

In conclusion, organizational research on inequality conducted thus far has been valuable,

but has been fairly limited in its scope. We believe that enriching our conceptual understanding

of what inequality is and how various forms of inequality (e.g., gender, race, health, and

education) are related to each other will facilitate greater understanding of how inequality affects

organizations and why inequality is maintained in organizations.

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