Societal income inequality is a cause of numerous harmful consequences for individuals and the communities in which they live. In the current research, we argue that such disparities can also change the context of the employee-organization relationship. In a balanced employee-organization relationship based on principles of social exchange, organizations invest in high commitment work practices (HCWPs), providing employees a shared belief that their commitment to the organization will be reciprocated with fair treatment. When the larger environment in which the organization operates is characterized by high levels of income inequality, however, employees have little faith in the fairness of this exchange. As a result, HCWPs are less likely to generate an effective social exchange relationship. Using data from 192 hotel franchises nested within 40 U.S. states, we find that HCWPs affect collective affective commitment by helping to create a strong justice climate; however, this process was moderated by state-level income inequality. Although franchises in states with low income inequality enjoyed a strong effect of HCWPs on justice climate, franchises in states with high levels of inequality had essentially no relation between HCWPs and justice climate, suggesting a breakdown of the implicit social exchange contract. The interactive effect of state income inequality remained robust to several alternative explanations examined in supplementary analyses. Results are discussed in terms of the impact of societal income inequality on organizational functioning, HCWP effectiveness, and methods organizations can adopt to help offset the damaging effects of societal income inequality.
