What Is Equity Theory?

Equity theory is a concept of human relations based on utility, or the amount of happiness and satisfaction one gets out of any given relationship. It can be used in personal life, government or business. It is centered around a cost-benefit analysis of any given relationship. The primary variable is the equalization of effort and work among the partners. The effort put into the relationship from one partner must be more or less equal to the effort the others expend.


Utilitarianism is a moral approach that bases ethics on whether or not people involved in social relationships are happy. Utility is based on consequences. In equity theory, people are happy when the effort expended in a relationship is equalized by a) the reward earned from the effort and b) the effort from other partners in the relationship, community or society.


The assumption of equity theory is that people enter relationships for an expected utility, or an expected gain. Work is required, but the work is justified given the expected gain to the worker. Associations or relationships of any kind are crated for the sake of this same utility: the organization can do more than an individual can do in isolation. The only caveat here is that the work expended by the partners must be equal. At the very least, the rewards taken from the association must be tied to the amount of work one does. In business, if a floor worker is getting minimum wage for a 40-hour week, while the manager is getting $20 an hour for similar work, then the association will make the floor worker miserable. He is exploited, and hence, his relative utility is negative. The result is that the floor worker will do all in his power to gain a similar reward to those doing similar work.


In any relationship, work is expended. Relationships are based on effort. A relationship is unequal if the effort one partner gives is unrelated to the effort the other partner(s) give. The “effort” here is defined in any relevant way. It could be investment cash, emotional commitment or research work. For example, if college students organize a study group, and one student is doing all the legwork while the others, later, take the benefits, then the relationship is unequal, and the student that did all the work will feel exploited. The study group idea is based on the concept that the group will get more work done than if the students were to study on their own. The purpose is perverted if one student alone does the work, while the others merely take advantage of this work later.


In the final analysis, happiness is defined in equity theory as an equal connection between effort and reward in any given relationship or association. Inequality is defined as the disconnect between effort and reward based on factors not related to effort or talent, such as personal connections. Equity theory is a moral theory in that it seeks to understand the causes of happiness and satisfaction. Conflict can be explained given the differences in the relationship between work and reward, since conflict occurs when one partner in the relationship feels exploited.