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The utility of pay raises/cuts: A simulation experimental study

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  • Mitra, Atul
  • Jenkins, G. Douglas
  • Gupta, Nina
  • Shaw, Jason D.

Abstract

Theories from the fields of psychophysics, economics, and organizational behavior are integrated to develop insights about people’s attitudinal reactions to (i.e., the utility and disutility of) pay raises and pay cuts of different sizes. Linear, logarithmic, power, and quadratic functions are developed from this integration. Techniques for evaluating the empirical applicability of these utility/disutility relationships are illustrated among a sample of 192 student “employees” in an experimental simulation. The results provide a partial test of the integrated framework. The results indicate a quadratic relationship for pay raises and a linear relationship for pay cuts. Implications of these findings are discussed.

Suggested Citation

  • Mitra, Atul & Jenkins, G. Douglas & Gupta, Nina & Shaw, Jason D., 2015. "The utility of pay raises/cuts: A simulation experimental study," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 150-166.
    • Handle: RePEc:eee:joepsy:v:49:y:2015:i:c:p:150-166
    DOI: 10.1016/j.joep.2015.05.003
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    1. Helena Lopes & Sérgio Lagoa & Ana C Santos, 2019. "Work conditions and financial difficulties in post-crisis Europe: Utility versus quality of working life," The Economic and Labour Relations Review, , vol. 30(1), pages 39-58, March.

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    More about this item

    Keywords

    Pay raises; Pay cuts; Utility and disutility;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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