Articles

How Firms Shape Income Inequality: Stakeholder Power, Executive Decision Making, and the Structuring of Employment Relationships

University of Pennsylvania

Published Online:21 Jan 2015https://doi.org/10.5465/amr.2013.0451

Abstract

Focusing on developed countries, I present a model explaining how firms help determine rates of income inequality at the societal level. I propose that the manner in which firms reward individuals for their labor, how they match individuals to jobs, and where they place their boundaries contribute to levels of income inequality in a society. I argue that the determinant of these three processes is due, in part, to the effect of systems of corporate governance on the power and influence of different organizational stakeholders, resulting in variance in the types of employment relationships that predominate in a society. I conclude with a discussion of the research implications of emphasizing employers and employment practices as key determinants of societal-level income inequality.

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Vol. 41, No. 2

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Published online 21 January 2015

Published in print 1 April 2016

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I gratefully acknowledge the excellent suggestions and support provided by Jone Pearce and the three anonymous reviewers. I thank Jerry Davis, Mauro Guillen, Katherine Klein, Chris Marquis, Leslie McCall, Samir Nurmohammed, Lori Rosenkopf, Flannery Stevens, Natalya Vinokurova, and Tyler Wry for thoughtful comments on earlier versions of the paper. I also deeply appreciate the guidance and feedback provided by Matthew Bidwell and JR Keller on multiple versions of the manuscript.

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