Research Insight 73 I Effects of wage inequality

Effects of wage inequality on customer satisfaction and business success


Bamberger, B/ Wielgos, D/ Homburg, CH

Wage inequality weakens long-term economic growth and social cohesion. Public discourse led to the obligation to disclose the salaries of top managers. However, wage inequality between top managers and their employees continued to rise in the last 10 years alone by 22% in Germany, 17% in England, and 18% in the USA. In Germany, an employee has to work 36 years to earn the annual salary of a top manager; in England, 55 years and the U.S. even 134 years (based on the study sample). The question arises: do companies have an economic incentive to reduce or increase wage inequality?

To investigate the above research question, researchers conducted two studies examining the impact of wage inequality on employee, customer, and business performance.

A key finding of the studies is that wage inequality increases a company's profitability in the short term. However, this initial positive effect of wage inequality disappears in the long run. In addition, companies should be aware of the unfavorable side effects of wage inequality: Wage inequality reduces customer satisfaction through increased customer-related opportunism and weakened customer-focused culture.

Read more here: Research Insight 73