Pay reductions and work attitudes: the moderating effect of employee involvement practices

Since the 2008 financial crisis, the UK workforce in general has experienced a period of stagnant and falling wages in both nominal and real terms. The main parties involved remain unsure of the consequences from such a historically unusual phenomenon. The purpose of this paper is twofold: first, to explore the main effect on job satisfaction and organizational commitment of those employees who had experienced pay reductions (nominal wage cuts or pay freezes under a positive inflation rate) as compared with those who experienced nominal pay rises during the recent recession; and second, to examine the moderating effect of employee involvement (EI) practices on that relationship. This was done by using aggregated employee perception data to measure organizational EI practices.

Employee-employer matched data were used, involving 8,489 employees and their associated 497 organizations (medium or large sized). The number of employees from each organization was between 15 and 25. The data used were extracted from the 2011 Workplace Employment Relations Study in the UK to which the authors applied hierarchical linear regression in STATA 13.

The results indicate that when compared with those employees who had nominal pay rises during the recession, employees who had wage cuts or freezes (with 5 percent inflation rate) are significantly and negatively associated with their job satisfaction and organizational commitment, even when controlling for important variables such as perception of job insecurity and the degree of adverse impact caused by recession on the organization studied. That is to say, facing the same perception of job loss, those who experienced pay reductions are significantly unhappier and less committed than those who had pay rises. However, the adverse effect of pay reductions on employees’ work attitudes is much less in workplaces characterized by a high, as opposed to a low level, of EI practices.

Implications, limitations, and further research issues are discussed in light of current employment relations’ practices.

The intention is to extend the current debate on employment relations under adverse changes such as pay reductions. Thus, the unique contribution of this study is to examine the value of EI in modifying extreme employee reactions to adverse changes.