The High Cost of Low Wages: Economic Scarcity Effects in Organizations

Due to current economic circumstances (e.g., stagnating wages, increasing material aspirations, mounting student debt), an increasing number of employees are prone to experiencing economic scarcity, defined here as the perception that one has fewer financial resources than one’s needs require. In this paper, we focus primarily on an under-studied population in the organizational sciences: The working poor — employees who hold jobs but do not earn enough to sustain a reasonable standard of living for themselves and their dependents. Taking into account recent research suggesting that scarcity can have profound psychological consequences, we argue that organizations have a vested interest in reducing feelings of financial deprivation among its employees because the psychology of scarcity has the potential to spill over into organizational functioning. Furthermore, we assert that most organizations’ approaches to managing low-wage work are not only ineffective at reducing the spillover effects of scarcity on organizational outcomes, but also increase their endurance because they do not account for the behavioral consequences of financial deprivation. As such, we present more sustainable initiatives through which organizations can reduce scarcity among its employees. Finally, we discuss ways in which organizational researchers can become more involved in relevant public policy debates.