Income Inequality and the Firm

Abstract

Growing income inequality has become a major social welfare problem across the globe. To date, scant attention has focused on the role of the firm in theories of income inequality, and management and organization theory has largely been silent on the issue. In this paper, we propose a redefinition of income inequality relevant for the firm. We also provide a theoretical framework that identifies the firm-level causes of inequality, the cues indicating when inequality is excessive, and the factors that might inhibit managerial recognition and response to those cues. Our analysis provides the basis for future empirical work and suggests important implications for theories of human resource management, executive pay, organizational justice, and social responsibility. It also suggests a number of critical recommendations for managers and policy makers seeking to reduce excessive levels of income inequality.

Keywords: Inequality, social welfare, organizational justice, corporate social responsibility