Effects of job satisfaction on the worker's wage and weekly hours: A simultaneous equations approach

The current study examines the effects of job satisfaction on the worker's weekly wage and hours. Under the assumption that these three variables may be simultaneously related, the study estimates wage, weekly hours and job satisfaction equations in a simultaneous equations framework by a two-stage procedure. Using three separate samples from the NLSY79, the study demonstrates that, regardless of the age of the worker, weekly wage is positively related to job satisfaction. The relation between weekly hours and job satisfaction, however, is not uniform among workers of all age-groups. Hours are related to job satisfaction positively when workers are younger or when they are mature adults and negatively when they are middle-age adults. Interestingly, weekly wage and weekly hours are found to be statistically insignificant in most job satisfaction equations, whereas job satisfaction emerges as a significant covariate in both wage and hours equations. This recursive relationship among these three variables indicates that job satisfaction may in fact influence wage and weekly hours in a causal sense. Since computationally tractable formulas for the corrected asymptotic variance-covariance matrices of the proposed two-stage estimators are not available in the literature, the study derives them for the benefit of econometrics practitioners.