How Firms Shape Income Inequality: Stakeholder Power, Executive Decision Making, and the Structuring of Employment Relationships
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employment relationship
internal labor markets
wage setting
job matching
firm boundaries
corporate governance
executive compensation
Management Sciences and Quantitative Methods
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Abstract
Focusing on developed countries, I present a model explaining how firms help determine rates of income inequality at the societal level. I propose that the manner in which firms reward individuals for their labor, how they match individuals to jobs, and where they place their boundaries contribute to levels of income inequality in a society. I argue that the determinant of these three processes is due, in part, to the effect of systems of corporate governance on the power and influence of different organizational stakeholders, resulting in variance in the types of employment relationships that predominate in a society. I conclude with a discussion of the research implications of emphasizing employers and employment practices as key determinants of societal-level income inequality.