Relating pay inequality and pay level to need satisfaction and negative affective wellbeing

While economists, sociologists and to a lesser extent psychologists have researched pay inequality, it has been majorly neglected in management research. This study examines the combined effects of pay level and pay inequality on needs satisfaction and negative affective wellbeing. Drawing on a large-scale UK nationally-representative dataset of employees nested within workplaces, we find that lower levels of pay associate with lower need satisfaction, which in turn relates to negative affective wellbeing. Against expectations, workplace pay inequality was not directly associated with needs satisfaction or negative affective wellbeing. In line with expectations, the effects of pay inequality on need satisfaction was moderated by the extent workplaces operated individual performance-related pay practices, and pay level had stronger effects on needs satisfaction in workplaces characterised by high pay inequality. The findings suggest that pay level is a much stronger direct predictor of needs satisfaction than pay inequality, that a workplace's individual performance-related pay practices shape the effects of pay level and to a lesser extent pay inequality on need satisfaction, and that workplace pay inequality shapes the context surrounding the effect of pay level on need satisfaction.