The effect of intra-workplace pay inequality on employee trust in managers: Assessing a multilevel moderated mediation effect model

High levels of economic inequality are widely viewed as a key challenge facing both advanced industrial and developing economies. Country-level studies have consistently shown a negative link between income inequality and trust in others. This is typically attributed to greater social distance within unequal societies. Do we observe similar relationships within organisations? This is an important question because employee trust is associated with important outcomes for workers and organisations. We answer it by investigating the relationship between pay inequality and employee trust in managers at the workplace level using large-scale nationally representative matched employer-employee data from Britain. The paper uses innovative machine learning methods to demonstrate a curvilinear relationship between pay inequality and trust. When pay inequality is at low to moderate levels, increasing inequality is associated with increasing employee trust but when pay inequality passes a certain threshold the relationship turns negative. The relationship is mediated by employees’ perceptions of manager fairness and moderated by employee collective voice. The implications of these findings for theory, research methodology, practice and future studies are discussed.