The effect of intra-workplace pay inequality on employee trust in managers and workplace performance: The interplay of fairness perceptions, shared values, and collective employee voice

Many industrialised and emerging economies have come to acknowledge the significant increase in income inequality over the past decades as problematic. Macro level research has consistently found a negative relationship between income inequality and trust in others. This PhD research project was motivated to find out if similar relationships also play out on the organisational level and, if so, what factors are responsible for them. To investigate this, I study the relationship between pay inequality and employee trust in managers at the workplace level using the 2011 Workplace Employment Relations Study – a large scale employer-employee matched survey representative of workplaces in Britain. Using machine learning algorithms, the findings suggest that, contrary to the macro level, the relationship between intra-workplace pay inequality and employee trust in managers is non-linear, following an inversely U-shaped pattern. That is, the relationship is positive for small and moderate levels of pay inequality. However, once pay inequality passes a threshold, identified at a Gini coefficient around 0.25, any increase in pay inequality is associated with lower levels of employee trust in managers. The relationship is mediated by employees’ perception of manager fairness and shared values. The association between intra-workplace pay inequality and perceived manager fairness, in line with findings for the direct relationship, is inversely U-shaped with an inflection point at a Gini coefficient of around 0.25. Shared values mediate the relationship between perceived manager fairness and employee trust in managers. The relationship is predominantly found in workplaces with collective bargaining coverage, and trade union presence, as opposed to those workplaces without either proxy of employee voice, which are characterised by a negative association between pay inequality and trust, as well as between pay inequality and perceived manager fairness. A comparison between results for the weighted, unweighted and a sub- sample of medium and large workplaces indicate that these relationships apply mostly to medium and large workplaces. Based on these findings it was hypothesised that the much- debated relationship between pay inequality and firm/workplace performance is also likely to be inversely U-shaped. Findings offer support for this hypothesis, though results are sensitive to the type of workplace performance measure, sample and statistical approach employed. The findings have important implications for theory, methodology and practice.