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Within-establishment wage inequality and satisfaction

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  • Poggi, Ambra
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    Abstract

    The aim of this paper is to provide fresh empirical evidence on the mechanisms through which wage inequality affects worker satisfaction.Theoretically, the wages of others may affect workers' utility for two main reasons: Workers may derive well-being from their social status (the comparison effect) and/or they may use others' wages to help predict their own future wage (the information effect). The author tests both hypotheses. To do this, she models individual utility from pay as a function of a workers own wage and the earnings of all other workers within the same establishment, and she estimates the model using matched British employeremployee data. The author assumes incomplete information about others' wages. She finds that the comparison effect matters. Interestingly, she also provides some evidence on a positive relation between well-being and inequality. Her results are robust to different specifications and different definitions of the reference group. --

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    Bibliographic Info

    Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

    Volume (Year): 8 (2014)
    Issue (Month): 4 ()
    Pages: 1-21

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    Handle: RePEc:zbw:ifweej:20144

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    Keywords: Satisfaction; comparison income; co-workers; inequality; incomplete information;

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    1. Seidl, Christian & Traub, Stefan & Morone, Andrea, 2005. "Relative Deprivation, Personal Income Satisfaction, and Average Well-being under Different Income Distributions," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/04, World Institute for Development Economic Research (UNU-WIDER).
    2. Deaton, A., 2001. "Health, Inequality, and Economic Development," Papers, Princeton, Woodrow Wilson School - Development Studies 200, Princeton, Woodrow Wilson School - Development Studies.
    3. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 837-57, July.
    4. Clark, Andrew E. & Kristensen, Nicolai & Westergård-Nielsen, Niels C., 2008. "Economic Satisfaction and Income Rank in Small Neighbourhoods," IZA Discussion Papers 3813, Institute for the Study of Labor (IZA).
    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
    6. P. J. Sloane & H. Williams, 2000. "Job Satisfaction, Comparison Earnings, and Gender," LABOUR, CEIS, CEIS, vol. 14(3), pages 473-502, 09.
    7. Hirschman, Albert O & Rothschild, Michael, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(4), pages 544-66, November.
    8. M Patterson & P Warr & M West, 2004. "Organizational Climate and Company Productivity: the Role of Employee Affect and Employee Level," CEP Discussion Papers dp0626, Centre for Economic Performance, LSE.
    9. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, Elsevier, vol. 89(5-6), pages 997-1019, June.
    10. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
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