Wage Inequality Negatively Impacts Customer Satisfaction

What is it about?

This article adopts a marketing perspective to examine how wage inequality between top managers and their employees may have customer-related consequences (i.e., customer-directed effort, customer-directed opportunism, and customer-oriented culture) that affect customer satisfaction and firm performance. Surprisingly, marketing scholars and practitioners have largely neglected this pressing societal issue. The authors collect a cross-industry, multisource data set, including responses by top-level managers and objective data on wage inequality and firm performance from 106 business-to-business-focused firms (Study 1). In addition, they analyze multisource longitudinal panel data covering 521 firm-year observations for business-to-consumer-focused firms (Study 2). In two empirical studies, the authors show that wage inequality boosts firm profitability in the short run. In the long run, however, this positive effect disappears. What remains is a negative effect on customer satisfaction, as wage inequality motivates employees to act opportunistically toward customers and become less customer-oriented.

Featured Image

Photo by Blogging Guide on Unsplash

Photo by Blogging Guide on Unsplash

Why is it important?

The pandemic put a spotlight on the rising wage inequality between top managers and employees. In Germany, for example, an employee has to work 36 years to earn the annual wage of a top manager. By comparison, an employee in the UK would need 55 years and 134 years in the US. This urges the question: Do companies have an incentive to raise or reduce wage inequality? These findings may guide researchers, managers, shareholders, and policy makers in addressing the challenge of rising wage inequality. First, the study urges managers to consider the customer and long-term consequences of growing wage inequality. Second, it also offers policymakers a valid argument to build consensus with managers that it would be best for society and businesses to reduce wage inequality.

Perspectives