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The Relative Utility Hypothesis With and Without Self-reported Reference Wages

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  • Adrian de la Garza
  • Giovanni Mastrobuoni
  • Atsushi Sannabe
  • Katsunori Yamada

Abstract

This article uses survey data of 90,000 union employees working in 62 publicly-traded companies in Japan between 1990 and 2004 to study the effect of both own and self-reported reference wages on workers' subjective well-being levels. The availability of self-reported reference wages generates very robust findings that do not depend on questionable identifying assumptions. These findings confirm that higher estimates by workers of their peers' earnings are associated with lower levels of life and job satisfaction. These comparison effects are statistically and economically strong but are smaller in absolute value than the impact of workers' own wages on their own utility. We compare our results with standard tests of the relative utility hypothesis in the literature that recur to alternative proxies for comparison wages, including: (i) Mincer-predicted wages; (ii) cell averages defined over different groups within our dataset; (iii) cell wage averages estimated from an external data source; and (iv) colleagues' average wages. In spite of their potential flaws — that we discuss — these alternative empirical constructs employed in the literature do not introduce a simple classical measurement error problem and the bias attributed to this measurement error issue can go in both directions. We propose a simple IV strategy when the self-reported reference wage is not available that does not eliminate the bias but delivers a lower bound of the "true" effect. We also address the issue of endogeneity of self-reported reference wages in our subjective well-being regressions by accounting for workers' pessimistic attitudes at the workplace.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 159.

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Length: 36 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:cca:wpaper:159

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Keywords: Subjective well-being; relative utility; reference wages;

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References

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Cited by:
  1. Katsunori Yamada & Masayuki Sato, 2010. "Another Avenue for Anatomy of Income Comparisons: Evidence from Hypothetical Choice Experiments," ISER Discussion Paper 0795, Institute of Social and Economic Research, Osaka University, revised Mar 2013.
  2. Goerke, Laszlo & Pannenberg, Markus, 2013. "Keeping up with the Joneses: Income Comparisons and Labour Supply," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80033, Verein für Socialpolitik / German Economic Association.
  3. Temesgen Kifle, 2014. "Do Comparison Wages Play a Major Role in Determining Overall Job Satisfaction? Evidence from Australia," Journal of Happiness Studies, Springer, vol. 15(3), pages 613-638, June.
  4. Temesgen Kifle & Isaac H. Desta, 2012. "Gender Differences in Domains of Job Satisfaction: Evidence from Doctoral Graduates from Australian Universities," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(3), pages 319-338, December.
  5. Andrew Clark & Claudia Senik & Katsunori Yamada, 2013. "The Joneses in Japan: Income Comparisons and Financial Satisfaction," ISER Discussion Paper 0866, Institute of Social and Economic Research, Osaka University.
  6. Katsunori Yamada & Masayuki Sato & Yasuhiro Nakamoto, 2009. "Measurement of Social Preference from Utility-Based Choice Experiments," ISER Discussion Paper 0759, Institute of Social and Economic Research, Osaka University.

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