Living to Work and Working to Live: Income as a Driver of Organizational Behavior

This art icle was downloaded by: [ Universit y Of Pit t sburgh] On: 18 August 2015, At : 09: 21 Publisher: Rout ledge I nform a Lt d Regist ered in England and Wales Regist ered Num ber: 1072954 Regist ered office: 5 Howick Place, London, SW1P 1WG The Academy of Management Annals Publicat ion det ails, including inst ruct ions f or aut hors and subscript ion inf ormat ion: ht t p: / / www. t andf online. com/ loi/ rama20 Living to Work and Working to Live: Income as a Driver of Organizational Behavior a a Carrie R. Leana & Jirs Meuris a Kat z Graduat e School of Business, Universit y of Pit t sburgh Accept ed aut hor version post ed online: 18 Feb 2015. Published online: 27 Feb 2015. Click for updates To cite this article: Carrie R. Leana & Jirs Meuris (2015) Living t o Work and Working t o Live: Income as a Driver of Organizat ional Behavior, The Academy of Management Annals, 9: 1, 55-95, DOI: 10. 1080/ 19416520. 2015. 1007654 To link to this article: ht t p: / / dx. doi. org/ 10. 1080/ 19416520. 2015. 1007654 PLEASE SCROLL DOWN FOR ARTI CLE Taylor & Francis m akes every effort t o ensure t he accuracy of all t he inform at ion ( t he “ Cont ent ” ) cont ained in t he publicat ions on our plat form . However, Taylor & Francis, our agent s, and our licensors m ake no represent at ions or warrant ies what soever as t o t he accuracy, com plet eness, or suit abilit y for any purpose of t he Cont ent . Any opinions and views expressed in t his publicat ion are t he opinions and views of t he aut hors, and are not t he views of or endorsed by Taylor & Francis. The accuracy of t he Cont ent should not be relied upon and should be independent ly verified wit h prim ary sources of inform at ion. 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Term s & Condit ions of access and use can be found at ht t p: / / www.t andfonline.com / page/ t erm s- and- condit ions The Academy of Management Annals, 2015 Vol. 9, No. 1, 55– 95, http://dx.doi.org/10.1080/19416520.2015.1007654 Living to Work and Working to Live: Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Income as a Driver of Organizational Behavior CARRIE R. LEANA* Katz Graduate School of Business, University of Pittsburgh JIRS MEURIS Katz Graduate School of Business, University of Pittsburgh Abstract Income as a relatively stable aspect of a job (e.g. annual salary, non-incentive wages, or weekly or hourly pay) has received relatively little consideration in organizational theorizing and research, despite its critical importance to workers, organizations, and society at large. Income inequality has similarly received scant attention, although it is a topic of great intellectual and practical importance. In this paper we describe the ways in which income and income inequality affect how people behave in both their professional and personal lives, and suggest ways in which organizations may influence, and be influenced by, these effects. We integrate research from a number of disciplines, highlight leading findings across them, and suggest ways in which organizational scholarship can inform research and practice in this domain. Our ∗ Corresponding author. Email: leana@pitt.edu # 2015 Academy of Management 55 56 † The Academy of Management Annals Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 goal is to facilitate the development of income-related research programs in organizational science. Few factors are as essential to individual well-being as is income. As the title of this paper suggests, we “work to live”, that is, to support a satisfying life for ourselves and for those who depend upon us. At the same time, income is often more than merely a means to achieve a satisfactory quality of life. Many of us also “live to work”, that is, our jobs, and the income they provide, are often an integral part of our lives and self-identities. People heavily weigh income in major life decisions such as occupational choices, job changes, and even marriage and family decisions. In addition, income is often used to designate social status and is used by policy makers as a primary indicator of the well-being of individuals, demographic groups, neighborhoods, and entire societies. Curiously, income has received relatively little attention in organizational research as a driver of employee attitudes, affect, and behavior, despite its importance in people’s lives. The exception to this paucity of research has been the voluminous literature on monetary incentives and pay-for-performance schemes (e.g. Cadsby, Song, & Tapon, 2007; Gneezy, Meier, & Rey-Biel, 2011; Stajkovic & Luthans, 2001), suggesting that organizational researchers may be inclined to focus on managers and the issues that are most important to them. Furthermore, much of the research on the psychology of money and income is relatively recent and in its nascent stage of development. Thus, it may only now be coming to the attention of organizational research. Finally, some (e.g. Lea & Webley, 2006) have argued that the psychology of money is a visceral one, exhibiting similarities to the effects of other visceral influences on human behavior such as hunger and thirst and, as Loewenstein (1996) notes, visceral influences are often underestimated by individuals, partly because people tend to forget how important they were in influencing past behaviors. As the colloquial saying goes, “money may indeed make the world go ‘round’”, but people may at the same time underestimate the strength and frequency of its influence on their own behavior, which may be partially responsible for inhibiting research on the topic. Our primary goal here is to argue for the inclusion of income and money in mainstream organizational research. Income as a relatively stable aspect of a job (e.g. annual salary, non-incentive wages, or weekly or hourly pay) has received relatively little consideration in organizational theorizing and research, despite its critical importance to workers, organizations, and society at large. Here we will describe how income (and money in more general terms) has been considered in the extant literature, and suggest fruitful directions for its inclusion in future organizational research and theorizing. Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 57 Our goal is to facilitate the development of money and income-related research programs in organizational science. Our discussion is organized into five sections that assess different foci of income and money-related research. In the first section, we describe income levels, income saliency, and income comparisons as three distinct paradigms that have been utilized to study the effects of income on attitudes and behavior. Additionally, we discuss the differences between income and status, as some previous work has confounded the distinctions between the two, with income often used as a proxy for status (see Côté, 2011, for a discussion). While obviously related, the two are not inherently the same and their distinctions are important to note if advances in both arenas are to be made. Second, we review the extant research on individual income as a driver of attitudes, perceptions, and behaviors. Over the past decade, psychological research has increasingly examined how money affects individuals and several recent studies have begun to examine the influence of income on work behaviors and decisions (e.g. income and decisions to start a business (Sørensen, 2007); income effects on work control and stress (Christie & Barling, 2009); and income and turnover decisions (Batt & Colvin, 2011)). This review draws from a wide range of disciplines in order to develop recommendations for future research informed by fields that may not be as familiar to organizational scholars. Third, we address the issue of income dispersion and inequality—issues that have increasingly come to the forefront since the 2008 financial crisis—and what we know about the effects of inequality and dispersion on individual and collective behavior. Interestingly, the emerging literature on income dispersion indicates significant effects, not just on those at the lower end of the income distribution, but on those at other levels of the spectrum as well. Fourth, some recent research has addressed income as an important contextual variable, showing that the income context (e.g. organizations with higher vs. lower average wages or organizations located within geographic regions with lower vs. higher average household incomes) can affect the relationships between focal variables in organizational research (cf. Gino & Pierce, 2010). Context can refer to the objective situation (e.g. average income of the geographic area around the organization) or how an actor construes the situation of an exchange (e.g. cognitive framing), each providing a unique perspective on how income can inform and contextualize work behavior. Finally, we provide several conclusions as a basis for promising future research. We anticipate that the integration of these disparate, but related, research streams will (1) heighten researchers’ awareness of the importance of income differences in understanding organizational behavior; (2) organize the existing research to highlight the linkages among related research streams; and (3) spur future research with a particular focus in this domain. 58 † The Academy of Management Annals Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Income, Saliency, and Status Past work on the effects of income on behavior and attitudes has tended to focus on three drivers: (1) the effects of differences in level of income; (2) income (or money) saliency; or (3) income comparisons (either to the past or future self or to others). The research on income levels examines how different echelons of income are associated with particular behaviors or attitudes. For example, researchers have examined individual pay or salary and its effect on various work-related outcomes such as counterproductive work behavior (Huiras, Uggen, & McMorris, 2000), turnover (Rosen, Mittal, Stiehl, & Leana, 2011), or other career transitions (Dobrev & Barnett, 2005). Some of this work uses the total income of a household (rather than individual pay or salary) as a predictor of individual outcomes such as stress (Kahneman & Deaton, 2010), financial strain (Judge, Hurst, & Simon, 2009), and moral judgments (Pitesa & Thau, 2014), in some cases allowing for a better estimation of how people experience their financial status. For example, a person’s perceptions of financial resource scarcity are likely based on their total available income, which may exceed their individual pay. Conversely, when careerrelated behaviors and feelings are of interest, such as justice and satisfaction, individual income is likely to be more appropriate. A second stream of research, most notably work by Vohs and her colleagues, has focused on the effects of making money more or less salient to individuals. When money is made salient (e.g. through word scrambles that include references to income), study participants are found to be more selfreliant, less helpful to others, and have stronger preferences for solitary work and leisure activities (Vohs, Mead, & Goode, 2006). Pfeffer, DeVoe and colleagues’ recent work on the economic value of time is also relevant in this domain. In a series of studies, these authors find that increasing the saliency of the connection between time and income results in a variety of behavioral and perceptual changes, including individuals’ willingness to volunteer their time (DeVoe & Pfeffer, 2010), their enjoyment of leisure activities (DeVoe & House, 2012), and the importance of money in subjective assessments of well-being (DeVoe & Pfeffer, 2009). This work highlights the diversity in potential triggers for money saliency, which can range from physically handling money (e.g. Zhou, Vohs, & Baumeister, 2009) to organizational primes such as hourly pay. Finally, there are a variety of studies that examine comparative income. In this line of research, the focus is on individuals making comparisons between their present income and their income in the past (intrapersonal comparisons), or between their own income and that of others (interpersonal comparisons). The psychology-based research here borrows considerably from the larger literature on relative deprivation (e.g. Crosby, 1976) and equity theory (Adams, 1963), while much of the research in economics is focused on understanding Living to Work and Working to Live † 59 the Easterlin paradox (1995), which posits a weak relationship between money and subjective well-being. Also included in this line of research are some of the studies that examine income inequality and income differentials, a growing area within social science research due to increased public interest in their justification as well as their effects (e.g. Piketty, 2014). Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Income and Status Before discussing the effects of income within several areas of interest, it is important to make a distinction between income and socioeconomic status (SES). The two are strongly related, indeed often conflated, with income seen as a primary component of SES in theories of social class. For example, Côté (2011, p. 47) defines social class as “a dimension of the self that is rooted in objective material resources (income, education, and occupational prestige) and corresponding subjective perceptions of rank vis-à-vis others”. Oakes and Rossi (2003) similarly define SES as comprised of three components: material capital, human capital, and social capital. Nam and Boyd (2004) review the history of studies of occupational status, particularly with regard to the U.S. Census, where occupational status is determined as a function of the mean education and mean earnings for particular occupational groups. Note that such status calculations focus only on two of the three components of social class (material capital and human capital) and use narrow representations of each (earnings and education). Operationally, income is often used as a proxy for social class. There is good reason for this: financial standing often drives behaviors, preferences, opportunities, and attitudes. As Côté described (2011, p. 47), Access to material resources leads individuals to exhibit certain distinctions, including the neighborhoods where they live, the educational institutions they attend, and their social club memberships, recreational and aesthetic preferences, manners and customs, clothes, language use and accents, and patterns of nonverbal behavior. In this light, income is a primary component (and, perhaps, a leading determinant) of status and class, and the cognitive, social, cultural, and psychological states that accompany it (Côté, 2011; Kraus, Piff, Mendoza-Denton, Rheinschmidt, & Keltner, 2012). At the same time, income’s influence is not solely a facet or driver of status effects, but can independently affect thoughts, feelings, and behavior. Vohs, Mead, and Goode’s (2008) work is a good example of this, where they find that conscious awareness of money alone decreases helping behavior and increases effort allocation on challenging tasks in randomly assigned participants, suggesting that money can drive people’s behavior above and beyond status influences. Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 60 † The Academy of Management Annals Our focus here is on the material capital component of class and, more precisely, earned income1 as the representation of material capital. In this regard, our review is more focused than recent reviews by Côté (2011) and Kraus et al. (2012), who discuss social class more broadly. We acknowledge that income co-varies with other objective components of social class such as education and occupational status, while at the same time these components are only moderately correlated (Kraus, Piff, & Keltner, 2009) and there are numerous counter-examples that provide evidence for their conceptual separation (e.g. social workers typically have high educational credentials but are paid less than similarly-credentialed professionals). Additionally, in their review of the literature on social class, Kraus et al. (2012, p. 548) conclude that objective resources like income and more subjective assessments like relative status are “relatively independent aspects of social class” and thus can—and arguably should—be considered separately. More importantly, in the following sections, we will show that the differences and dispersion of income alone can affect how people behave individually and collectively within organizations. Objective vs. Subjective Assessments of Income A person’s income can be examined from both an objective and a subjective perspective that can lead to markedly different outcomes. Objective income level can affect how people behave, but its utility to an individual is based on subjective interpretation through cognitive awareness (DeVoe & Pfeffer, 2009; Vohs et al., 2008) and expectancies based upon past income (Kahneman, 2003a; Kahneman & Tversky, 1979; McBride, 2010). As Kahneman and Tversky note, “the same level of wealth may imply abject poverty for one person and great riches for another” (1979, p. 277). Differences between absolute circumstances and subjective construal have long been recognized by psychological research on relative deprivation, the phenomenon in which a person’s evaluations of his/her current situation are not monotonically related to the objective situation (e.g. Crosby, 1976). In a rare direct comparison of objective income and subjective construal, Ackerman and Paolucci (1983) found that subjective income adequacy explained more variance in overall and economic life quality than objective income measures, although both were significant predictors. The growing literature and debate on income and happiness implicitly acknowledges the distinction between objective and subjective income. Hagerty (2000), for example, found that the effect of income on subjective well-being is socially construed, such that one’s satisfaction with income level is, in part, dependent on social comparisons within a community. Smith, Diener, and Wedell (1989) report analogous findings in experimental studies. Boyce, Brown, and Moore (2010) examine the effects of absolute Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 61 income, comparative income (how one’s income compares to the norm), and ranked income (one’s ranking within an income distribution) on life satisfaction and found that relative rank was the strongest predictor of the three. Another line of research that draws heavily upon the subjective valuation of income is Mullainathan, Shafir, and colleagues’ (e.g. Mullainathan & Shafir, 2013) work on the psychology of scarcity. They posit that financial scarcity causes people to focus on immediate concerns, increasing cognitive load and inhibiting quality decision-making. Scarcity is a subjective valuation of one’s income based on a negative comparison between an individual’s current income and his/her valued goals. All things being equal, two people with the same income may not undergo the psychological effects of scarcity equally because goals, desires, and standards may differ, as the literature on hedonic adaptation suggests (e.g. Frederick & Loewenstein, 2003). Summary Much of the research on income effects tends to assume one of three general paradigms: the effects of objectively different levels of income; the effects of income saliency; or the effects of income differentials or social comparisons. Research programs under each of these categories, and even within category boundaries, have existed relatively independently of one another, partially due to disciplinary divides that set methodological preferences and topics of interest. Our discussion of research on income as an independent variable will incorporate studies from each of these approaches to better understand the ways in which income can affect how people perceive, feel, and act in order to provide a basis for future study of money and income. To facilitate a review of the extant research on income, we have briefly discussed the differences between income and SES that have been confounded in the literature. Income is a primary component of most measures of SES, so much so that they are often used interchangeably (cf. Coté, 2011). Status, however, is a broader construct, typically encompassing other objective factors such as education and occupation, as well as subjective components such as perceived class or rank, that are likely to affect people differently than the isolated effect of money. Indeed, various experimental studies have found driving effects of money (e.g. Zhou et al., 2009), where the influence of education and work status was reduced through random assignment. At the same time, income appears to be one of the most common ways in which SES is operationalized in research, either alone or in combination with educational attainment, even though income is only moderately correlated with other objective components of class, as well as subjective assessments of it, such as perceived status or rank. Since income tends to affect people above and beyond other dimensions of SES, it warrants consideration as an independent driver of human behavior. Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 62 † The Academy of Management Annals Furthermore, when studying income, researchers have examined both objective and subjective construals of income. Prior work has used objective indicators such as wages, as well as subjective indicators such as asking study participants about the adequacy of their objective income to meet their needs. For many, objective and subjective assessments of income have considerable overlap but, as the earlier quote from Kahneman and Tversky (1979) suggests, subjective assessments of income are socially construed, and not perfectly correlated with objective income levels. Equal levels of wealth can lead one person to perceive scarcity while another perceives abundance, producing severely different hedonic experiences. Thus, both objective and subjective income appear to be important and both will be considered here. Income as an Independent Variable Previous work in organizational research has generally considered income as a dependent variable or as a covariate, but income can also be a driver of individual cognitions, affect, and action. Money is a strong motivator of human behavior (e.g. Lea & Webley, 2006), as the vast literature on incentives has shown (e.g. Cadsby et al., 2007; Stajkovic & Luthans, 2001), but it can also affect employees well beyond the motivational component of task and job performance. We divide this section into six themes in which research has suggested significant effects of money and income upon individual behavior, and illustrate the eclectic nature of income-related research ranging from work on the psychology of scarcity (Mullainathan & Shafir, 2013) to social policy research on income and health (Wilkinson, 1998). Our treatment here is not an exhaustive one, but it does represent areas of significant and current research activity regarding the role that income, and money in general, can play in affecting individual behavior. Cognitive Functioning The literature on income and cognitive functioning is in a nascent stage, but there is emerging evidence that worry about income sufficiency undermines cognitive functioning. Mullainathan and Shafir (2013) describe a phenomenon they label tunneling, a process whereby feelings of scarcity lead to a laser focus on resources that are lacking (e.g. money) to the detriment of other issues that might require cognitive effort. For example, in one study, Mani, Mullainathan, Shafir, and Zhao (2013) found that farmers had lower cognitive ability before the harvest when they were relatively poorer in comparison to performance on post-harvest cognitive tests. Poverty-related concerns increased cognitive load, and thus farmers had fewer mental resources to allocate to other tasks due to tunneling in on income concerns. Similarly, Spears (2011) found that making economic decisions under poverty conditions reduced behavioral Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 63 control across several experiments and large-scale survey data. According to Mullainathan, Shafir, and colleagues (Mullainathan & Shafir, 2013; Shah, Mullainathan, & Shafir, 2012), tunneling is at least partially responsible for observed detrimental behaviors of the poor including over-borrowing and failure to take advantage of financial assistance programs offered by employers, indirectly affecting subsequent scarcity experiences. A recent PEW survey report (2013) confirms these arguments, showing that people accepting payday loans with high interest rates (at times exceeding 1000%) often take them not realizing they will likely need to return to apply for subsequent loans since loan payments tend to be higher than the roughly 5% of their paycheck they can afford to use for paying off their debt. Taken together, these findings may explain why lowincome individuals may behave in ways that appear short-sighted and impede long-term success (Mullainathan & Shafir, 2013; Vohs, 2013), and why lowincome individuals may believe that they have lower relative ability, thus decreasing their perceptions of entitlement to economic rewards (Butler, 2013; Hall, Zhao, & Shafir, 2014). In addition, cognitive limitations can affect how people compute probabilities and make them more likely to rely on heuristics, leading to a suboptimal decision-making capacity (Deck & Jahedi, 2013). As a result, when a person’s total financial resources are insufficient, he/she may enter into a negative cyclical pattern partially due to the impeding effects of income-related concerns and the psychology of scarcity (see Mullainathan & Shafir, 2013, for a discussion of the scarcity trap). If income, and particularly worry about income adequacy, can affect individual cognitive functioning, there can be significant implications for behavior and performance at work. For example, skill development for low-income workers may often fail because participants’ cognitive resources are already taxed with income-related concerns (Mullainathan & Shafir, 2013). Thus, these employees may show lower proficiency for skill acquisition (Kanfer & Ackerman, 1989), leading them to be relatively unaffected by organizationally-initiated remedies. Income-related concerns can also cause more heuristic processing in order to reduce the cognitive load of scarcity (cf. Shah & Oppenheimer, 2008), increasing the likelihood of reliance upon implicit theories and easily-accessible information, which can have indirect consequences for work behavior. For example, Detert and Edmondson (2011) have shown that people tend to rely upon implicit theories of voice in their decisions to speak up. People with income-related concerns may be more likely to use implicit theories, and therefore be less likely to voice novel and useful ideas, especially when combined with their tendency to have suppressed self-efficacy (Butler, 2013). The Attachment of Money to Time Recent work by Pfeffer, DeVoe and colleagues (e.g. DeVoe & Pfeffer, 2007a) has argued that attaching money to time causes a market-pricing mindset Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 64 † The Academy of Management Annals (cf. Fiske, 1992), where time is perceived through an immediate utility lens. This cognitive framing increases the salience of the value of time, which can reduce volunteering (DeVoe & Pfeffer, 2007b, 2010), increase the pressure of time (DeVoe & Pfeffer, 2011), reduce enjoyment of leisure activities (DeVoe & House, 2012), and reduce happiness (DeVoe & House, 2012). The theoretical argument made in this work is that the attachment of money to time leads to an economic input/output calculation of time that is normally reserved for the mental accounting of money (DeVoe & Pfeffer, 2007a). Since lower income employees are more likely to be on an hourly payment schedule (e.g. Mullainathan & Shafir, 2013), the attachment of a market-pricing frame to time may also enhance the previously-discussed detrimental effects of scarcity because of perceived simultaneous time and money scarcity. Moreover, if enhancing the saliency of hourly payment leads to less participation in leisure activities and increased feelings of time pressure, the attachment of an economic calculus to time may also lead to stress and burnout, which have important consequences for organizations (e.g. Maslach & Leiter, 1997). Stress and burnout can also exacerbate the previously-mentioned cognitive functioning effects of scarcity for low-wage employees by reducing cognitive performance and drawing attention to threat-related stimuli (e.g. Eysenck, Derakshan, Santos, & Calvo, 2007). As a result, the attachment of income to time may provide unique challenges for organizations, especially if the workforce is already prone to experiencing economic and/or time scarcity on a regular basis. Happiness and Well-Being While the relationship between income and happiness has been of long-standing interest in the popular press, various scholars have recently weighed in on the question of whether money leads to happiness and have attempted to untangle the relationship between money, happiness, and people’s overall life satisfaction. This work is found primarily in economics (e.g. Easterlin, 2001, 2011; Sacks, Stevenson, & Wolfers, 2010), but the issue has also drawn attention from psychologists (e.g. Kahneman & Deaton, 2010; Kahneman, Krueger, Schkade, Schwarz, & Stone, 2006) and organizational researchers (e.g. DeVoe & Pfeffer, 2009; Malka & Chatman, 2003). Interest in the relationship between money and happiness is not surprising since it has significant national and international policy implications regarding the quality of life for people around the world (McBride, 2010). Easterlin (2001, 2011), considered one of the most influential scholars in this area, argues that the relationship between income and happiness or subjective well-being is influenced by the aspiration level of the individual. People tend to judge their happiness with past income much lower than their reported level of happiness when they were in that situation. The reason is that material Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 65 aspirations change over the life course, leading us to be happy when our income situation is in line with our aspirations. Thus, increases in income do not necessarily result in increases in happiness because the material norms on which happiness judgments are anchored change along with the level of income (Easterlin, 1995). People spend most of their lives working to make more money, which reciprocally changes their material aspirations, causing very little change in their level of happiness (Easterlin, 2011). These propositions are consistent with findings that anchoring is a dynamic process (e.g. Chapman & Johnson, 1999; Kahneman, 1992), that utility is reference-dependent (e.g. Kahneman, 2003a; Kó´szegi & Rabin, 2006), and Kahneman’s (2000) hypothesis regarding an “aspiration treadmill”. In response to Easterlin’s assertions, some economists have criticized his conclusions. For example, Sacks et al. (2010) present data that supports a connection between national GDP and subjective well-being. In a follow-up paper, Sacks, Stevenson, and Wolfers (2012) found a positive relationship between absolute income and subjective well-being, both between and within countries. Indeed, almost every study on the subject has shown a positive correlation between income and subjective well-being, although the correlations vary widely across sample and study (DeVoe & Pfeffer, 2009). Easterlin and colleagues (Easterlin & Angelescu, 2009; Easterlin, McVey, Switek, Sawangfa, & Zweig, 2010), in turn, have made the counter-argument that there could be a connection between happiness and economic gain in the short term, since the immediate increase in income can lead to increases in happiness, but as expectations of income change over time, happiness dissipates. Kahneman et al. (2006) agree with Easterlin that there is no sustained relationship between income and happiness, but provide an additional rationale for this conclusion. They argue that higher income is unrelated to more time spent in enjoyable activities, essential to subjective well-being (see Cantor & Sanderson, 2003), while increasing the likelihood of stress. Therefore, income is not positively related to one’s level of happiness. In response to the contrasting perspectives on this issue, both in economics and in psychology, Kahneman and Deaton (2010) argue that there is a relationship between income and life satisfaction, but not happiness. They found that income was positively associated with both life satisfaction and emotional well-being, but income had no effect on emotional well-being beyond a given level ($75,000 per year in the U.S.). They conclude that low income exacerbates the negative life events one may experience, but at higher levels of income the monetary gain does not buy happiness, partially due to the factors outlined by Kahneman et al. (2006). More recently, however, some scholars have continued to find positive relationships between money and happiness (Haushofer & Fehr, 2014), although they do not necessarily undermine Kahneman and Deaton’s (2010) argument. Below a certain income level, chronic income inadequacy can provoke a state of anxiety (Haushofer & Fehr, 2014) and overtake our Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 66 † The Academy of Management Annals thoughts. Aspirations of income sufficiency will be relatively stable up to a certain point because the individual is mostly concerned with adequacy and meeting basic needs. Above this threshold, however, increases in income affect discretionary spending where changing aspirations may have a greater impact in suppressing the income-happiness relationship. These differential findings have also attracted interest from some scholars in organizational behavior who examine why in some cases income may lead people to feel happiness, while in other cases there is a very small relationship between the two. Some research has suggested that individual differences can affect the money-happiness relationship. For example, Malka and Chatman (2003) argue that people differ in their orientation toward intrinsic and extrinsic rewards. When MBA students in their study had an extrinsic orientation, there was a positive relationship between income and subjective well-being, but when they had an intrinsic orientation, the relationship was reversed. Additionally, DeVoe and Pfeffer (2009) show that organizational context can affect the relationship between income and happiness. Across four studies, they found that income was more strongly related to happiness when individuals were paid by the hour compared to non-hourly payment systems. These findings are in line with their other work on the cognitive attachment of money to time, which has shown that when employees are on an hourly pay system, they come to value money more (DeVoe & Pfeffer, 2007a). Aaker, Rudd, and Mogilner (2011) have recently argued that the time component of the relationship between money and happiness has often been neglected, and that research should examine how time interacts with both variables (e.g. who people spend time with, choice of time expenditure, and the changes on happiness over time) in order to develop a complete perspective of the money-happiness relationship. Career Transition Salary progression is often considered an effect of specific career strategies or changes rather than as a driver of the professional decisions individuals make (e.g. Gould & Penley, 1984). However, as people transition from one phase of their professional lives to the next, income tends to be an important factor because it can have considerable influence over the consequences of the change. Income can be factored into the decision-making process to initiate change or maintain the status quo within one’s professional life. For example, Sørenson (2007) investigated factors that influence an employee’s decision to become an entrepreneur. Although not the main focus of his research, he found a negative relationship between salary and entrepreneurial entry: employees were less likely to become entrepreneurs as salary increased. Noteworthy in this study is that non-salary income (e.g. from accumulated wealth) was positively related to entrepreneurial entry, illustrating the Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 67 differential effects of a person’s employment income vs. her total level of wealth. A likely explanation for differences between the two variables in the entrepreneurial entry context is that income from other sources reduces the uncertainty and risk associated with career transitions, while the income derived from the job may be linked to satisfaction with current career status. Beyond the potential differences between source of income, this example also illustrates the need for scholars to consider how money factors into the specific context in order to choose the income sources that are important to the dependent variable of interest. Additionally, due to the previously-discussed effects of scarcity, those with lower income may be at a disadvantage in performing at work and thus become stalled in their professional advancement. These effects can be attenuated when low-income employees have a sense of control over their own work and destiny (Lachman & Weaver, 1998) or by increasing their self-efficacy (Hall et al., 2014). Subjective perceptions of low income can be self-fulfilling in that they may lead people to make decisions and behave in ways that are not beneficial to increasing their levels of wealth (e.g. Mullainathan & Shafir, 2013; Vohs, 2013). Therefore, when organizations provide low-income employees with a sense of control and opportunities that allow them to progress in their careers, such interventions may break the cyclical relationship between low income and short-sighted decision-making, and in this way can be beneficial to the organization in the long run as well (Leana, Mittal, & Stiehl, 2012). Ethics, Values, and Prosocial Behavior The influence of money on ethical behavior has been of particular interest to scholars, especially with regard to its potential role as an incentive to behave unethically. Numerous high-profile examples, ranging from the Ponzi scheme by Bernie Madoff to the decisions of some investment banks leading to the 2008 financial crisis, can attest to the important place financial interests have in ethical transgressions. In fact, the mere salience of money has been shown to impact ethical decision-making and related outcomes. Vohs et al. (2006, 2008), for example, have found that the salience of money decreases individual prosocial behavior and increases risk-taking behavior, two outcomes closely related to individual ethical tendencies. People with money are often motivated to maintain and increase their levels of wealth because the happiness of possession tends to wear off relatively quickly until new wealth is acquired (e.g. Frederick & Loewenstein, 2003; Kahneman, 2000) and increases in wealth are associated with the attainment of social status (Ashraf, Camerer, & Loewenstein, 2005). Piff and colleagues (Côté, Piff, & Willer, 2013; Piff, Kraus, Côté, Cheng, & Keltner, 2010; Piff, Stancato, Côté, Mendoza-Denton, & Keltner, 2012) have found that people with higher SES are less likely to behave prosocially, more likely to cheat, and Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 68 † The Academy of Management Annals more likely to be utilitarian in their decision-making. These findings go beyond the objective salience of money to one’s subjective wealth anchored within a socioeconomic system by asking people to indicate their perceived status. Relatively recent research in behavioral ethics has started to unpack the psychological processes that underlie the relationship between money and ethical transgressions. Gino and Pierce (2009), for example, found that the mere presence of potential wealth heightens individuals’ unethical tendencies because people tend to envy the wealth of others. Their findings have important implications for organizations and society in general since the salience of wealth symbols (e.g. luxury cars and designer clothes) may heighten people’s envy of wealth and subsequent tendency to engage in unethical behavior. Gino and Mogilner (2014) analogously show that priming money salience increases cheating behavior. In addition, John, Loewenstein, and Rick (2014) argue that people with low pay rates are also susceptible to unethical actions, but only if there are salient upward comparisons. These findings highlight the importance of social comparisons to income effects on unethical behavior. Finally, Sharma, Mazar, Alter, and Ariely (2014) assert that when people feel financially deprived—that is, subjectively low income anchored in an image of what they should have—they are more likely to loosen their moral standards and cheat. Pitesa and Thau (2014) correspondingly find a relationship between chronic states of financial deprivation and moral judgments. Taken together, these studies provide evidence that money plays a significant, yet complicated, role in unethical behavior. At the same time, the processes that underlie these relationships could have significant implications for the ethical behavior of employees and managers at work. In fact, the previously-summarized research would suggest that when employees’ income is salient, they will tend to take greater risks, care less about the outcomes of others, and be more likely to behave unethically, which can all have an impact on organizational functioning. Employees could be more likely to engage in deviant behavior when their income is salient because they have increased concern for their own outcomes. For example, Huiras et al. (2000) suggest that employees are more likely to be deviant when their current job, and by extension income, does not match their imagined career path. In addition, the salience of income can affect the interpersonal interactions of employees with each other and with customers. Employees for whom income is salient may be less service-oriented because they become focused upon self-sufficiency rather than the outcomes of others (e.g. Vohs et al., 2006). Physical, Psychological, and Social Health Income is an important contributor to individual health because it can determine the availability of care, provide access to health-promoting activities, and support healthy eating, often considered luxuries. There is considerable Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 69 evidence showing income effects on the incidence and treatment of disease, health-related lifestyle practices such as diet and exercise, and even mortality rates (Adler & Ostrove, 1999; Singh & Siahpush, 2006; Taylor, Repetti, & Seeman, 1997; Williams & Collins, 1995). In essence, low-income individuals tend to be sicker and to die younger than their higher-income counterparts. Leana et al. (2012) summarize some of the explanations for such income effects. These range from differential access to health services based on income (Macintyre, Maciver, & Sooman, 1993) to differences in the safety of neighborhoods, with low-income individuals tending to live in areas characterized by higher levels of crime, pollution, and crowding than their higherincome counterparts (Durden, Hill, & Angel, 2007; Taylor, Repetti, & Seeman, 1997). Research in work psychology has similarly found a strong relationship between objective income and average number of illness symptoms among manufacturing workers (Schmitt, Colligan, & Fitzgerald, 1980). In addition to its effect on physical health described above, research has found a positive relationship between income and mental health (see Lund et al., 2010, for a review). Common mental disorders, such as depression and anxiety, are more prevalent as one goes down the income ladder. Haushofer (2011), for example, shows that scarcity is significantly related to physiological markers of stress and depression. The reasons for the consistent bivariate association between income and mental health are summarized by Lund et al. (2010) as due to the increased stress, social isolation, physical health problems, and social stigma associated with low income. Research from several academic domains also has documented the effect of income on many aspects of life outside of work. Prior research has examined income effects on a broad range of factors associated with marriage and family. Such studies show that marriage rates are lower, non-marital birthrates are higher, and teen pregnancy is more prevalent among lower-income individuals than their higher-income counterparts (Carlson, McLanahan, England, & Devaney, 2005; Small & Newman, 2001). Numerous studies have also examined the relationship between income and child development. At very early ages, children in lower-income families show lower achievement outcomes (e.g. developmental skills in preschoolers) than children in higherincome families (Kohen & Guevremont, 2013). Moreover, Dahl and Lochner (2012) show not only that income predicts older children’s achievement in math and literacy, but also that increases in income alone can significantly raise school achievement scores, particularly for children from economically disadvantaged families. Low-income children also show a higher incidence of disciplinary problems in school, as well as more difficulty with emotional regulation than their higher-income counterparts (Farah, Noble, & Hurt, 2005; Jackson, Brooks-Gunn, Huang, & Glassman, 2000). There are some clear consequences for organizations that can be extracted from the reviewed literature. For example, employees at the lower end of the Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 70 † The Academy of Management Annals income spectrum may be more likely to experience health issues that are costly by leading to higher rates of absenteeism, reductions in work productivity, and overall declines in well-being (e.g. Goetzel et al., 2004; see also, Pfeffer, 2010). Although the cost of compensating for absenteeism or replacement of lowwage workers may not be considered significant from a financial perspective, companies may be better off providing some level of health support to these workers beyond reasons for employee satisfaction, recruitment, and retention. According to Pfeffer (2010), health, and human sustainability in general, has received relatively little attention in the management literature, threatening the long-term performance and sustainability of the organization. Clearly there are also organizational implications for the inverse relationship between income and family functioning. First, because of the increased stress of higher levels of family dysfunction, low-income workers are more likely to experience both work-family conflict and family-work conflict. Second, such conflict can result in higher levels of absenteeism, turnover, workplace injuries, and “presenteeism” (Johns, 2010), in addition to lower overall productivity. Again, the costs of income deficiency are borne not just by the individuals and families who experience it, but also by the organizations employing them. Summary Research on the effects of income and money can be characterized as extremely heterogeneous and dispersed across a variety of disciplines, as shown in the six themes discussed in this section. It ranges from the psychological experience of scarcity proposed by Mullainathan and Shafir (2013), to relative income, the attachment of income to time, and income, health, and well-being. But across these different foci, we find common threads and findings that as a whole contribute to our understanding of how income and money affect peoples’ lives both in and out of work. As the presented research illustrates, money can affect how we think (e.g. Mullainathan & Shafir, 2013), how we view various aspects of our lives (e.g. DeVoe & Pfeffer, 2007a), our health (e.g. Wilkinson & Pickett, 2006), the quality of our non-work lives (e.g. Carlson et al., 2005), moral decision-making (e.g. Kouchaki, Smith-Crowe, Brief, & Sousa, 2013), and our overall life happiness and satisfaction (e.g. Kahneman & Deaton, 2010). Indeed, this work suggests that money is a powerful driver of human thoughts, feelings, and behavior across contexts. These effects may also interact with one another and lead to differential findings. For example, we may use income to make important decisions, such as movement into entrepreneurship (Sørenson, 2007), but the cognitive tunneling of money scarcity can be detrimental to making a quality decision to become an entrepreneur. When people believe that their personal economic resources are scarce, they are likely to be aversive to the uncertainty of entrepreneurship Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 71 and less likely to feel confident in their ability to lead a business venture. These interactions would be fruitful avenues for future research. By integrating the heterogeneous research within the six themes, we show that there are real consequences rooted in money and income for organizations beyond the role of incentives that have not received as much attention as may be warranted. For example, the scarcity of money may be tied to reduced skill acquisition and performance due to its cognitive burden, or unethical behavior, an important yet often undermanaged issue in organizations, which may be influenced by the saliency of wealth symbols (e.g. Gino & Pierce, 2009) and social comparisons with others in the organization (e.g. John et al., 2014). Across the six themes discussed in the preceding sections, we have offered various opportunities for future research on how workers and organizations are affected by income levels that we trust will spur investigation in these areas. Furthermore, we hope that the diversity of research offered here will not only make organizational scholars more aware of money-related research within each domain, but will also entice them to collaborate with other disciplines in developing novel insights. Dispersion and Inequality: Social Comparisons of Income In recent years, dispersion and inequality of income have become increasingly contested issues because of their public policy implications. As Shaw (2014) notes, debate over organizational income discrepancies between employees and top management came to the forefront during and after the 2008 financial crisis. At the societal level, debates over national and international income inequalities have intensified, fueled by political, economic, and generational divides. In this section, we discuss two areas of research that have received attention across the disciplinary spectrum. The first is work on income dispersion in organizations, which has examined how differences in pay within an organization have affected organizational outcomes. We then summarize the work on societal income inequality including, as previously discussed, health outcomes, but also other important economic and societal effects. With growing inequality around the world and extensive political debate on social policies to address it, this is an area of research that is ripe for increased attention from organizational scholars. Income Dispersion The dispersion of income—the relative pay of an individual in relation to others, the spread of income within a collective, and the subjective interpretation of such differences—can influence individual and collective behavior and attitudes. Income dispersion inherently involves comparisons, whether at the group, organizational, national, or societal levels. Compared to other Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 72 † The Academy of Management Annals areas of income-related research, income dispersion has received relatively more attention from organizational researchers. Shaw (2014, p. 522) recently reviewed pay dispersion within organizations, which he defined as “differences in pay levels between individuals within (i.e. horizontal or lateral dispersion) or across (i.e. vertical dispersion) jobs or organizational levels”. Citing Pfeffer and Langton’s (1993) original observation, along with research over the past two decades, Shaw describes the theoretical debate in the literature on pay dispersion and performance. On one side of the debate, largely grounded in economics and tournament theory, researchers have argued that pay dispersion is beneficial to organizations in that greater differences in pay motivate employees to higher levels of effort and achievement. On the other side of the debate, pay dispersion is said to undermine harmony and cooperation in work environments because of the dysfunctional competition it engenders (Pfeffer & Langton, 1993). Neither position has been entirely supported empirically; rather, subsequent research addressing this debate has suggested several factors important to consideration of pay dispersion effects. Not surprisingly, pay differences must be seen as fair, legitimate, and related in individual performance to be seen as motivational by employees, consistent with equity theory (Adams, 1963). The impact of differences in income may indeed be more pronounced when people feel that the differential is unjustified or due to an unjust system. Other factors such as the interdependence of the work and the adequacy of overall pay levels have been found to be important moderators of the dispersion-performance relationship. At the same time, Shaw (2014) concludes that pay dispersion is directly associated with turnover: greater differences in pay within the organization are related to higher turnover rates (see Shaw, 2014, for a more complete review of this literature). As with the literature on income effects more broadly, subjective interpretations of income come into play in considering income dispersion, particularly in the development of fairness perceptions. For example, Shaw and Gupta (2001) found that the perceived fairness of pay was positively related to life satisfaction, negatively related to health outcomes like somatic complaints, and negatively related to employee job search intent. Perceived fairness in income distributions may be partially a function of priming (Vohs et al., 2008) and may vary based upon individual differences such as age, education, and marital status (Alves & Rossi, 1978; Jasso & Rossi, 1977). As Shaw (2014) further notes, some recent work suggests a mediating role of affect between perceived fairness and important outcomes. Employees making upward comparisons may feel envious when they perceive the difference as unjustified, but they similarly can experience guilt if there are salient and unfair downward comparisons. As Adams (1963) noted long ago, however, experienced guilt may be less likely to trigger reaction than envy since people who feel disadvantaged are more likely to feel stronger emotions than will those who are (perhaps Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 73 unjustly) advantaged. The disadvantaged, moreover, have a much larger stake in rectifying inequity because they are being deprived of something that they believe they either have the right to possess or the right for an opportunity to obtain. Income dispersion can have indirect effects upon employee behavior and collective well-being by providing social information about the interpersonal dynamics within an organization, and the organizational valuation of human capital. For example, income dispersion can affect the standards to which organizational leaders are held. When income dispersion is high, employees may hold leaders to higher standards in an effort to justify the gap between the leader’s income and their own. Income inequality can also affect performance among employee teams. Siegel and Hambrick (2005) found that pay dispersion in top management teams was negatively related to firm performance due to a reduction in collaboration. Similarly, Trevor, Reilly, and Gerhart (2012) found a negative relationship between unexplained pay dispersion and team performance in interdependent contexts. Finally, income dispersion may be related to interpersonal communication and knowledge transfer in organizations. For example, Kleinbaum, Stuart, and Tushman (2013) show that pay equality is positively related to dyadic communication and information-sharing. As these results suggest, the effects of income dispersion are highly contextualized and need to be treated as such to further build the knowledge base in this area. Income Inequality The recent economic recession has brought renewed attention to income inequality, which has typically been operationalized as vertical income dispersion, or the difference between the top and the bottom income of a region or society. The importance of income inequality for social policy and the increasing debate over the fairness of organizational, national, and global dispersion warrant specific discussion beyond vertical income dispersion within the organization. There has been a good bit of recent research here that has focused on societal-level inequality. Income inequality in the U.S. and elsewhere has undoubtedly increased, particularly over the past two decades.2 Scholars have offered a variety of explanations for this increased inequality, including technological change and wage premiums for skills; decreased rates of unionization; de-industrialization; and decreases in employment concentration (see Davis & Cobb, 2010; OECD, 2011; Piketty, 2014, for recent discussions). Here, however, we are concerned primarily with the consequences of such inequality. Income inequality is associated with a variety of social ills, including poorer physical and mental health, higher rates of family dissolution, higher rates of crime, lower educational achievement among children, higher rates of infant Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 74 † The Academy of Management Annals mortality, higher rates of teen pregnancy, higher rates of obesity, higher rates of imprisonment, and lower life expectancy overall (Marmot & Wilkinson, 2005; Wilkinson & Pickett, 2007, 2009). With regard to inequality and health, the context of inequality appears to make a difference in terms of the severity of its consequences. Wilkinson (1998) suggests that people may be better off being in the middle class in poor countries compared to being poor in the U.S. and other developed economies, arguing that health at the individual level is a function of relative income within the societal context. The focus on relative income is warranted because the cost of health care and a general healthy lifestyle are dependent upon the overall wealth of a nation or region in determining their expense. A literature review by Wilkinson and Pickett (2006) reports that 70% of relevant studies find a significant positive relationship between income inequality and population health problems. Findings differed significantly based upon the coverage area of the studies, however, with over 80% of country-by-country comparisons and 40% of regional comparisons reporting a positive relationship. The authors argue that the reason for differences in significant findings between studies is that income inequality must be seen in relation to the national population rather than within the region because low- and highincome communities tend to be segregated from one another (also see Wilkinson, 1997). Health problems in society bring significant costs to the collective, leading most nations to adopt policies to address them that are unlikely to be effective independent of income-related issues (c.f. Wildman, 2003). At the same time, any improvements in income inequality will have more profound effects on those at the lower end of the distribution, which can slow support for these types of measures (Wilkinson, 1992). Income inequality also limits intergenerational economic mobility—or the ability of one generation to achieve a higher economic station than their parents (Corak, 2013). Krueger (2012) refers to this phenomenon as “The Great Gatsby Curve”, which rates countries based on levels of income inequality and economic mobility. In countries with particularly high inequality (e.g. the U.S.), almost 50% of the income (dis)advantage of parents is passed on to their children, whereas in low inequality countries (e.g. Finland), less than 20% of parents’ economic station is passed on to the next generation. One explanation for the strong relationship between mobility and equality may be that people living in areas where income is highly unequal are less likely to pursue education and other human capital investments (Bapuji & Riaz, 2013). Another explanation is the high costs inequality imposes on the young. For example, Kearney and Levine (2011) show that teen pregnancy is more prevalent among low-income girls who live in states with higher income inequality than for those living in states with less inequality. Taken together, these findings suggest that income inequality suppresses opportunity Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 75 for those born at the low end of the spectrum and increases opportunity for those coming from the top of the ladder. Income inequality may also be associated with ethicality. For example, Neville (2012) shows that in U.S. states with higher levels of income inequality, there is a higher incidence of academic dishonesty (e.g. queries on electronic search engines seeking help with term papers and cheating). Other research has shown inequality associated with other forms of dishonesty such as tax evasion (Bloomquist, 2003). There are several explanations for the association between inequality and ethicality. One focuses on the detrimental effect of inequality on trust in others, whereby dishonesty is justified by the perception that others are also dishonest. Similarly, lack of belief in the fairness of the social and economic system may be more prevalent in areas with higher inequality. More broadly, income inequality has been associated with reduced emotional well-being. Oishi, Kesebir, and Diener (2011) examined 37 years of data from the U.S. General Population Survey and found evidence of a negative relationship between income disparity and happiness, but only for those at the lower end of the income distribution. Similar to the conclusions regarding inequality and dishonesty, these findings were attributed to two psychological mechanisms: (a) lower levels of social trust and (b) lower perceptions of fairness held by people who are disadvantaged in the income distribution when inequality is greater. As the authors conclude, “Americans are happier when national wealth is distributed more evenly than when it is distributed less evenly” (Oishi et al., 2011, p. 1099). Perhaps because of the decreased trust reported by Oishi et al. (2011) and others (e.g. Kawachi, Kennedy, & Lochner, 1997; Neville, 2012), inequality has been associated with lower social cohesion, which Wilkinson (1998) argues is the mediating variable between inequality and negative health consequences. Uslaner and Brown (2005) show a negative relationship between income inequality and participation in community activities, mediated by trust; Andersen and Fetner (2008) show that income inequality is associated with intolerance of others’ differences; Elgar and Aitken (2011) find that social trust partially mediates the relationship between income inequality and violent crime. Interpersonal and collective trust seem to be important consequences of inequality because people are likely to assume income as a social cue to infer others’ intentions and possible future behaviors. Therefore, when inequality is high within a collective, be it an organization or society, members across the income spectrum are more likely to develop mental schemas of how people above or below them will behave that then characterizes their interactions with others. Conversely, when inequality is low, differences in income are less likely to provide seemingly useful social cues because it is more difficult to differentiate people on the income attribute (which may increase reliance on other attributes to infer future behavior). 76 † The Academy of Management Annals Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Summary Income inequality has been examined within organizations (i.e. research on pay dispersion) and across societies. The evidence on the direct effects of pay dispersion has been mixed and points to both the complexity of the phenomenon and the role of subjective assessment in the findings. Here, Shaw (2014) offers a recent assessment of the research on pay dispersion that we briefly described. The research on income inequality is far more straightforward and points to a negative relationship between inequality and measures of societal health. Inequality is detrimental to well-being and social cohesion. Its negative effects are detrimental in the immediate term in the form of heightened mortality, morbidity, crime, and family dissolution, and decreased trust and social cohesion. Moreover, its detrimental effects reach far into the future in undermining intergenerational economic mobility. These findings are as robust as they are disturbing, both because of inequality’s immediate detrimental effects on people’s lives and what it portends for organizational life and society more broadly (see Piketty, 2014, for a detailed discussion of the latter point). With regard to work organizations, the lower trust and social cohesion associated with income inequality may lead to more authoritarian management practices that focus on monitoring and limiting worker autonomy which, in turn, may further erode trust and social cohesion in the workplace. The poorer health associated with inequality may lead to higher costs due to absenteeism, turnover, and healthcare expenses. The decreased family cohesion associated with inequality may lead to higher levels of work-family conflict and associated costs for employees and employers. The association between inequality and decreased investments in human capital is detrimental to employees’ career development and to organizations’ long-term innovation and performance. These are serious considerations about which organizational scholars have been largely mute both in terms of documenting the workplace costs associated with inequality and in terms of interventions that may diminish some of these costs. Income as Context In the past decade, several authors and journal editors have called for an increase in the contextualization of research (Bamberger, 2008; George, 2014; Johns, 2006). The contextualization of organizational behavior is necessary for scientific advancement since there is ample evidence that environments can shape and alter human behavior (e.g. Davis-Blake & Pfeffer, 1989). As summarized by George in his inaugural editorial as editor-in-chief of the Academy of Management Journal, “Studies that explain individual behavior are best positioned to take advantage of context” (2014, p. 2). Contextualization is also important because it facilitates the development of practical Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 77 applications, which addresses similar calls to step down from the academic “ivory tower” and make organizational research relevant to those working in the field. Income is one such contextual factor that can be very important in understanding how and why people behave as they do. In this section, we argue that income can provide both a subjective and an objective context for explaining why people may behave counter to conventional knowledge and assumptions. Income not only drives behavior through the mechanisms discussed in the previous sections, but can also provide an indirect contextual effect that alters how people behave. In contrast to our arguments on income as a driver of behavior, we suggest here that income can be a moderator of behavior. There are at least two ways in which income can be an important contextual influence. First, the income level of the area around the organization and its relation to the income of the individuals in the organization can lead to social comparisons and other important dynamics. The geographic area in which an organization is located affects the characteristics of its employees and how employees interact with members of the community (e.g. Gino & Pierce, 2009). Income of the surrounding area can also affect organizationcommunity relationships and how the organization contributes to community building (or destruction). Second, people whose income is salient can develop a subjective context through situational cognitive framing and labeling. Rather than income saliency driving the behavior, it can lead people to make decisions and judgments within an economic or market norm mindset, where the income does not necessarily cause the behavior, but leads people to construe and label their social exchanges differently. As a result, they may adopt a money-informed frame of reference for their social exchanges that affects their behavioral tendencies and expectations of others’ behavior. Community Context The community around an organization can influence the behavior of the people within it because it affects the organization’s employee and customer pool. For example, McClean, Burris, and Detert (2013) found a significant negative relationship between the household income within three miles of a restaurant and aggregate employee turnover. At the same time, organizations may engage in less socially-responsible behavior when the surrounding neighborhood is economically disadvantaged. Kassinis and Vafeas (2006), for example, found a significant positive relationship between per capita income and environmental performance of organizations. In both studies, income was included as a control and was not the focal variable within the study, but they illustrate how income contextualizes individual and organizational behavior, and show the need for more focused research on income as a contextual variable. Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 78 † The Academy of Management Annals Indeed, very few studies directly examine the income context of the community and its interaction with the organization and its members. One notable exception is a study by Gino and Pierce (2009—Study 1) that examined the interaction of customer wealth with the income of automobile inspectors. They found that inspectors were more likely to help luxury car owners if they worked in more wealthy areas because the facility profit incentives indirectly encouraged them to do so. On the other hand, the majority of inspectors in less wealthy areas were less likely to help luxury car owners. In a follow-up study using university students, they found that people were more likely to help another whose income was similar or lower rather than someone who was perceived as wealthy (mediated by empathy and envy). Across their two studies, Gino and Pierce (2009) highlight the importance of income as a context for behavior, yet there has been a relative dearth of research on how the income of an individual interacts with the income of others to produce certain attitudes and behaviors (see Leana et al., 2012, for a recent discussion). Given these intriguing initial findings and the increasing emphasis on context in organizational research, this would seem to be a ripe area for future study. Contextual Framing In addition to the objective situation, people develop different cognitive representations of the context in which social and economic exchanges take place, which influences how they behave within those contexts (e.g. Kahneman, 2003b). The powerful effects of the salience of market exchange rules are evidenced in studies on how academic exposure to economic principles can alter human preferences and behavior. These studies have found that economics education increases the use of cost-benefit decision rules (Larrick, Nisbett, & Morgan, 1993), reduces cooperation (Yezer, Goldfarb, & Poppen, 1996), increases self-interested behavior (Frank, Gilovich, & Regan, 1993), and increases positive attitudes towards greed (Wang, Malhotra, & Murnighan, 2011). Income can provide context to behavior, thoughts, and feelings by affecting how people subjectively label the situation they are in: when income or money is involved or salient, we may observe people behaving much differently than in other contexts due to their subjective construal of the exchange (e.g. Ariely, 2008; Gneezy et al., 2011; Gneezy & Rustichini, 2004; Heyman & Ariely, 2004; Titmuss, 1970). For example, Gneezy and Rustichini (2004) found that implementing small fines for parents who are late to pick up their children at daycare increased the number of parents who were late because the inclusion of a monetary punishment caused market norms to take over from an exchange previously guided by social norms. Similarly, some research has shown that the provision of monetary incentives for prosocial behavior, such as giving blood, reduces people’s willingness to engage in it (Titmuss, 1970). Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 79 Other work shows that non-monetary incentives do not have these effects (see DeVoe & Iyengar, 2010; Gneezy et al., 2011), which nicely illustrates our central point here: the salience or inclusion of money in an exchange affects how people behave within it. In both cases, money is not necessarily the driver of behavior, but its inclusion develops an economic schema that informs behavior in, and evaluations of, exchanges. Several studies support the effects of a money-oriented context on individual and collective behavior beyond the previously-mentioned research on academic exposure to economics. Molinsky, Grant, and Margolis (2012), for example, found that economic schemas reduced compassion and displayed empathy when delivering bad news with economic consequences. Similarly, Liberman, Samuels, and Ross (2004) found that priming an economic vs. social frame through language in a prisoner’s dilemma game led to different behaviors by the participants and different expectations of other participants’ behavior. Attaching labels to exchanges alters how people frame them and, as a result, behave within them (Zhong, Loewenstein, & Murnighan, 2007) because it reduces the uncertainty of the context and activates behavioral norms. When income is salient or involved even in a small way, people may be primed with specific labels on their exchanges that prompt market exchange principles. Furthermore, DeVoe and Iyengar (2010) illustrate that people tend to have a differential construal of fairness depending on whether the exchange involves money vs. equally-valued goods, showing how the involvement of money can contextualize fairness, providing evidence for money and income as potential contextual influencers. The effect of market exchange contexts on behavior is also evidenced in research on unethical behavior. Ariely (2008), for example, conducted an innovative study in dorm rooms at MIT where he left either soda cans or money in a common-use refrigerator. He found that people were more likely to take the soda rather than the money because taking the money made the unethicality of the behavior salient. Unethical behavior involving money evoked different decision principles than the soda cans. In another interesting study on unethical behavior, Falk and Szech (2013) found that market contexts deteriorated the life value of third parties in individual decision-making. When experimental participants were put in bilateral and multilateral market contexts, they were more likely to have a mouse killed for 10 euros than if the decision was made individually outside of that context. Finally, there is some work that has explicitly examined differences between exchanges involving money and situations that do not. For example, research by Heyman and Ariely (2004) showed that people put in less effort for low payment than for no payment or being provided with a non-monetary good. Their findings provide some evidence that market exchange rules have primacy over social exchange principles when there are cues prompting both simultaneously. Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 80 † The Academy of Management Annals Framing exchanges in terms of market principles as a result of income can have significant effects on behavior within organizations. Employees in moneyoriented frames of reference may be less influenced by initiatives and incentives that attempt to entice employees to volunteer their time for projects inside the organization that are not necessarily tied to their job or as part of an organization’s corporate social responsibility (CSR) efforts (cf. DeVoe & Pfeffer, 2007b, 2010). The previously-presented evidence for the effect of economic language and labeling suggests that the consistent saliency of income in organizations may lead to the development of self-interested cultures, which can then become self-fulfilling over time, becoming more important and increasingly change-resistant (Grant & Patil, 2012; Johnson et al., 2006), providing a strong context for shaping behavior. Summary Income does not solely function as a driver of behavior, but also provides a context that social exchanges occur within. Various studies have found that income provides a context for what we observe in organizations, both in terms of employee (e.g. McClean et al., 2013) and organizational (Kassinis and Vafeas, 2006) behavior. The importance of context in organizational research has been pronounced by editors and prominent scholars alike (e.g. George, 2014), yet income has rarely been considered as more than a control variable, even though its importance as a driving force of human behavior has been evidenced across disciplines. But rather than merely serving as a control, income may be an important moderator to consider when conducting organizational research. Since income contributes to the characteristics of various organizational stakeholders, organizational behavior as a field would be well served by a better understanding of how the income of each stakeholder affects organizations and the people within them. In addition, the dearth of research on the effects of community income seems incongruent with the rising interest in CSR. The extent and type of community building is likely to be partially influenced by community characteristics, including the income of those that the organization serves. Furthermore, income can have an important role in how people develop subjective contexts for their social exchanges by providing a label that informs behavior. The involvement or salience of income or money in general is likely to evoke different behavioral principles than when they are not salient, such as increased competitiveness and minimization of risk, which can lead to markedly different findings compared to contexts where income is not relevant. As the cited work (e.g. Devoe & Iyengar, 2010; Gneezy & Rustichini, 2004; Heyman & Ariely, 2004) shows, there is an important contrast between how people view monetary and non-monetary Living to Work and Working to Live † 81 exchanges that should not be ignored as a contextual influence in behavioral and organizational research. Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Directions for Future Research Throughout our discussion we have suggested several opportunities for better integrating income into organizational research. Here we present suggestions regarding what we believe are particularly fruitful opportunities in this domain. All are centered on the question: How do behavior, emotions, and cognitions differ when income or disparities in income are involved? This section explores the potential for future research on income in three domains in particular: (1) research on income as a predictor of human behavior, perceptions, and performance in an organizational context; (2) descriptive and predictive research on income inequality; and (3) prescriptive research to develop interventions to inform management practice. In each domain, we argue that organizational research is especially well positioned to contribute to the growing body of knowledge on income effects, which to date has been largely developed in other disciplines. Research on the Effects of Income Throughout this paper, we have argued that income affects how people behave in both their professional and personal lives, and have suggested several ways in which organizations may be influenced by these effects. Income scarcity itself is a topic in which organizational research has lagged behind other disciplines in contributing to our knowledge base, despite its increasingly clear implications for individual and organizational performance. Leana et al. (2012) recently developed a model of how poverty can affect organizational behavior, arguing that income is a strong context that affects many aspects of life, including attitudes and behaviors at work. They argue that low income depresses self-efficacy and social capital, while amplifying negative affectivity, leading to largely negative consequences for work behavior, job attitudes, and career attainment. One framing for future research in this domain is to examine income deprivation as a “strong situation” (Mischel, 1968) that may be powerful enough to limit the applicability of some theories of organizational behavior. As the research on scarcity (e.g. Mullainathan & Shafir, 2013) suggests, the insufficiency of economic resources has deleterious effects on decision-making and overall life functioning that do not necessarily stop when people enter their places of employment. Similarly, as we have discussed, there is evidence that those at the very top of the income distribution may be motivated differently at work than those in the middle and lower ranges. These present important opportunities for organizational scholars to contribute to the larger debate about income differentials and deficiencies. We hope our Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 82 † The Academy of Management Annals discussion here facilitates increased attention in organizational research, which we believe has been focused far too much on managerial and professional occupational groups and far too little on their lower paid counterparts. Second, whether it is the perception of scarcity or the salience of one’s income, such influences are at play in organizations, yet relatively little is known about them and how they affect organizational functioning and sustainability. For example, organizational research may be well served by examining how the negative effects resulting from income saliency can be attenuated. One avenue of future research in this domain is to add to the growing scholarly work on bias regulation (e.g. Kagel & Levin, 1986; Kaplan & Miller, 1978; Schmidt & Hunter, 1998). Gino and Mogilner (2013), for example, suggest that shifting the cognitive salience of money to salience of time in decisionmaking (or any other aspect of life that enhances self-reflection) can ameliorate the money salience effects found in Gino and Pierce (2009). Hall et al. (2014) analogously find that verbal self-affirmation exercises reduced some of the deleterious cognitive effects of scarcity among low-income people. These studies show that there may be key cognitive mechanisms that could be addressed in reducing the negative influences of income and money saliency on individuals. For example, the findings by Hall et al. suggest that the reduction of scarcity effects should include a self-efficacy enhancing component. Organizations can play a role in attenuating the negative effects of income, but scholars are only beginning to give them the tools to do so. Another fruitful avenue for research is examining how individuals’ cognitive and affective states are affected by the information embedded in their income level. Income provides a seemingly objective level of worth attached to one’s knowledge, skills, and abilities. Because people often do not consider the contextual influences that can cause fluctuations to an individual’s income, such assessments may be illusory (although nonetheless powerful). Future research can investigate the ways in which the information embedded within income affects how individuals view their roles in the organization and the resulting behavior from this interpretation. For example, are those who view their income as insufficient compared to their perceived worth less likely to engage in extra-role behavior, more likely to craft their jobs to gain intrinsic satisfaction, and/or less likely to consider pro-organizational behaviors such as voice and innovation as in-role behavior? And under what conditions would such effects be more or less pronounced? The extant research on this is mixed and suggests a complex relationship between income and various prosocial or extra-role efforts (cf. Piff et al., 2010; Stephens, Markus, & Townsend, 2007; Stiehl, Leana, & Mittal, 2014). Research on Income Inequality Income inequality is a topic of great intellectual interest and practical importance but, again, it has received little attention from organizational researchers Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 83 other than on questions regarding income dispersion within an organization. And as Shaw (2014) points out, in this limited treatment of inequality there is still much left unsettled in the research, even on the basic question of whether income differentials are a positive or negative force in organizations. We will not repeat Shaw’s (2014) recommendations for research here but instead focus on the larger question of inequality more broadly and its potential effects on organizational behavior. As we have described, income inequality is associated with lower trust and social cohesion—in short, a decaying of social capital in a society (Putnam, 2000). With regard to organizational research, what effects do societal-level inequality and social capital have on work behaviors, attitudes, and attachments? There is some cross-cultural research in management that indirectly addresses this question (although it is almost never the focus of such research) but, overall, organizational research has largely left this question unaddressed. We are struck by how peculiar this seems: societal-level trust and social cohesion—shown to be so critical to fundamental matters like physical and mental health, family stability, and economic mobility—would appear on their face to be at least as important to the practices and processes governing work relationships and behavior. Thus, we argue for its greater inclusion in organizational scholarship. As a starting point, here we offer some preliminary suggestions for future research. . . Income inequality and team dynamics: As the work by Siegel and Hambrick (2005), Kleinbaum et al. (2013), and Trevor et al. (2012) suggests, unexplained income inequality can affect the extent to which teams communicate, collaborate, and perform. When there is salient and unexplained income inequality within teams, its members may be more resentful and envious of those who benefit from the inequality (Adams, 1963), which can lead to enhanced relationship conflict, reducing team functioning and performance (De Dreu & Weingart, 2003). Are these same dynamics at play when the inequality is societal rather than just within an organization? Do the dampened trust and social cohesion associated with broader income inequality make for more difficult relationships in the workplace, just as they do in other life domains? There is little reason to assume that workplace relations are sheltered from the adverse effects of societal inequality. These are important questions to be addressed by organizational scholars. Income inequality and leadership: High income inequality may cause leaders to be seen as less prototypical of the group because of the increasing salience of economic differences, which are increasingly public due to legislation like the Dodd-Frank Act in the U.S. They can also be extreme. At Wal-Mart, for example, the ratio of CEO to median employee pay in 2013 was 1034:1. At the same time, leader prototypicality has been shown to provide benefits for group functioning. For example, self-sacrificing leaders are able to attain Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 84 . † The Academy of Management Annals higher follower performance when they are seen as more prototypical of the group (Van Knippenberg & Van Knippenberg, 2005). Prototypicality serves as a basis for leadership evaluation among followers who identify as part of the work group (Hais, Hogg, & Duck, 1997) because the leader is seen as “one of them”. Even when income differentials within a particular firm are not as gaping as the Wal-Mart example, public awareness of income differentials in the larger society may color leader –follower relations within the organization. Income inequality between leaders and followers—whether real or assumed—can reduce prototypicality, potentially reducing trust in leaders and the efficacy of leadership behaviors such as self-sacrifice, which can have negative consequences. Future research can examine how societal-level inequality affects how followers view leaders and their expectations of leader behavior given the real or perceived magnitude of income differences. Income inequality between groups and organizations: Inter-group income inequality provides an additional avenue for future research. Employees may interpret the suitability of their income through comparisons with other groups or organizations, and these comparisons can influence behavior in similar ways as those described in the literature on pay dispersion. We know that intra-organizational pay dispersion can influence member selfperceptions and self-worth by enhancing the saliency of one’s relative position in the group, which can evoke strong emotions, especially when the differences are surprising or in contrast to expectations. However, intergroup or inter-organization pay discrepancies can increase intentions to leave the current organization or group for other opportunities. Future research could examine the consequences of member movement between groups and organizations as a result of income disparities, or how intergroup wage disparities may affect group or organizational identity. In addition, it may be particularly interesting to examine how people choose their referents. Due to the rise of social media and global communications, employees have access to more referent alternatives than in the past and there may be important variables that influence referent choice. Research on Management Practice An area where organizational research is particularly positioned to contribute to the knowledge base on income effects is in the area of interventions. Traditionally, much of management practice has been oriented toward systems that attempt to address the detrimental cognitive, affective, and social consequences of low income and income inequality through more authoritarian methods such as monitoring, pay secrecy, and limited employee discretion. This approach to organizing work often leads employees to experience a Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 Living to Work and Working to Live † 85 chronic state of financial scarcity exacerbated by little input or flexibility in their scheduling (Henly & Lambert, 2014) and limited job security (Osterman & Shulman, 2011), further dampening self-efficacy. Management scholarship and practice would be well served by increasing our knowledge base about how these managerial methods, and the chronic states of insufficiency resulting from them, affect organizations and the people within them. Meuris and Leana (2015) have described three avenues through which organizations can address the detrimental effects of income scarcity and income inequality. The first, and most obvious, is to raise wages for lowincome workers. The second avenue, largely advocated by economists, focuses on a class of interventions that “nudge” employees toward behaviors that may attenuate the detrimental effects of scarcity over the long term such as encouraging more saving (Thaler & Sunstein, 2009). The third avenue, and perhaps the one most compatible with traditional organizational research, is to focus on the design of work, particularly for low-paying jobs. Because such jobs are often narrowly designed to limit employee autonomy and the acquisition of new skills, they may exacerbate the negative cognitive and psychological effects of economic scarcity. Here there are some good examples of useful organizational research. For instance, Lambert and her colleagues (Henly & Lambert, 2014; Lambert, 2008) have conducted a series of studies on schedule uncertainty in lowwage jobs, and how such uncertainty contributes to negative individual (e.g. work –life balance) and organizational (e.g. turnover) outcomes. Their ongoing intervention study on improving schedule predictability for workers in retail stores is an example of important research aimed at improving management practice. Kossek et al. (in press) at the Work, Family and Health Network are conducting similar interventions in other settings to reduce low-value work practices. Such intervention research shows rich promise and is especially amenable to the multi-level research designs and methods used by organizational scholars. Conclusions: Research Integration Throughout this paper we have drawn from research in a variety of fields including the usual contributing sciences such as economics, psychology, and sociology, but also fields such as medicine, public health, and social work that tend to receive less attention from organizational scholars. The dispersion of research on income and income inequality among fields has both advantages and disadvantages for the integration of income as a focal variable in research. The plethora of academic interest in income evidences recognition across disciplines that it is an integral part of human existence that should be better understood. Each discipline provides a unique perspective on income and money that strengthens the conclusions we can make from the integration Downloaded by [University Of Pittsburgh] at 09:21 18 August 2015 86 † The Academy of Management Annals of research, but the dispersion of research also tends to come at a cost to scientific advancement. Research tends to stay within disciplinary boundaries, inhibiting knowledge building and instead developing parallel streams of research that would benefit from greater collaboration. In this paper, we have attempted to integrate from a broad spectrum of disciplines, including those that receive relatively little attention from organizational scholars, in the hope that it will encourage and foster collaborative research on income and money effects. A common thread among the reviewed studies has been the distinction between objective levels of income and its subjective interpretation, aided by the conventions of the contributing disciplines. Objective and subjective income can independently explain variance in behavior (Ackerman & Paolucci, 1983), but some disciplines have tended to hold to their conventions rather than accepting or incorporating the findings in others. The debate on income and happiness, for example, is fueled by the traditional consideration of objective income in economics and the influence of psychology that focuses on the effects of subjective income and social comparisons. This work also highlights the important role that organizational scholarship, as an inherently integrative, discipline, can play in informing these debates. Finally, the integration of research on income has shown that organizational scholars can play a greater role in social policy. Income is important to numerous policy areas such as education, life satisfaction, public health, and employment. This review of the literature highlights how organizations affect, and are affected by, these outcomes beyond merely acting as a source of income. These findings provide organizational scholars with new avenues for research and an incentive to become more involved in the policies that are shaped to resolve social problems. Since organizations are an integral part of human life, they are well situated to help in addressing societal problems, and organizational scholars are well situated to shed light on how they might best do so. Endnotes 1. 2. Hereafter we use income to refer to relatively stable pay such as annual salary, or predictable monthly, weekly, or hourly wages. http://www.cenus.gov/hhes/www/income/data/historical/inequality/. References Aaker, J. L., Rudd, M., & Mogilner, C. (2011). If money does not make you happy, consider time. 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