Two-tier wage structures: Implications for equity theory

Summary

The research paper "Two-tier wage structures: Implications for equity theory," authored by J.E. Martin and M.M. Peterson in 1987, investigated the application of Adams' equity theory within organizations utilizing a two-tier wage system. The core objective was to understand how such wage structures impact employee perceptions of fairness regarding their pay and overall employment conditions. Equity theory posits that individuals assess the fairness of their outcomes (e.g., pay, benefits) relative to their inputs (e.g., effort, skills) by comparing their own ratio to that of relevant others, and perceived inequity can lead to psychological distress and efforts to restore balance. Two-tier wage structures, where newer employees are paid substantially less than existing employees for the same work, inherently create a situation ripe for such comparisons and potential perceptions of unfairness, as one's hiring date becomes the sole criterion for wage discrepancies. The methodology involved surveying retail employees working under a two-tier wage structure. The researchers framed their hypotheses around three situational factors: wage tier (low vs. high), work location (new vs. old stores), and employment status, investigating attitudes on pay equity, union instrumentality in achieving fair pay, and commitment to both the union and employer. The study explored both internal equity (fairness of pay compared to colleagues doing the same work within the store) and external equity (fairness of pay compared to individuals doing similar work for other employers). The selection of referents for equity comparisons was considered a function of both the availability of information and the attractiveness or relevance of those referents, aligning with prior research in equity theory. The findings revealed that low-tier employees consistently perceived significantly lower pay equity. This suggests that the inherent disparities in two-tier wage systems, where individuals perform similar jobs but receive different compensation based on hiring date, lead to strong feelings of unfairness among those on the lower wage scale. However, a nuanced finding emerged concerning work location: low-tier employees situated in *new* stores reported significantly higher scores across several measures compared to low-tier employees in *old* stores. These measures included commitment to their employer, perceived fairness of pay compared to others doing the same work both within their store (internal equity) and for other employers (external equity), and overall satisfaction with pay. This particular finding implies that the immediate context and perhaps the lack of a prolonged history of internal comparisons within a newly established environment might mitigate some of the negative equity perceptions for lower-tier workers.