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Inequality at Work: The Effect of Peer Salaries on Job Satisfaction

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  • Card, David
  • Mas, Alexandre
  • Moretti, Enrico
  • Saez, Emmanuel

Abstract

Economists have long speculated that individuals care about both their absolute income and their income relative to others. We use a simple theoretical framework and a randomized manipulation of access to information on peers' wages to provide new evidence on the effects of relative pay on individual utility. A randomly chosen subset of employees of the University of California was informed about a new website listing the pay of all University employees. All employees were then surveyed about their job satisfaction and job search intentions. Our information treatment doubles the fraction of employees using the website, with the vast majority of new users accessing data on the pay of colleagues in their own department. We find an asymmetric response to the information treatment: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected. Our findings indicate that utility depends directly on relative pay comparisons, and that this relationship is non-linear.

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Bibliographic Info

Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt48z7z9dn.

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Date of creation: 01 Sep 2010
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Handle: RePEc:cdl:indrel:qt48z7z9dn

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Keywords: Labor Economics;

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References

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  1. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  2. Raj Chetty & Emmanuel Saez, 2009. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," NBER Working Papers 14836, National Bureau of Economic Research, Inc.
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  7. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
  8. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
  9. Daniel S. Hamermesh, 2001. "The Changing Distribution of Job Satisfaction," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 1-30.
  10. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May.
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  12. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
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  18. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Inequality at Work: The Effect of Peer Salaries on Job Satisfaction
    by maximorossi in NEP-LTV blog on 2010-11-21 10:59:42
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Cited by:
  1. Montizaan Raymond & Vendrik Maarten, 2012. "Misery loves company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Research Memoranda 013, Maastricht : ROA, Research Centre for Education and the Labour Market.
  2. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," Working Papers halshs-00564985, HAL.
  3. Adrián De la Garza & Giovanni Mastrobuoni & Atsushi Sannabe & Katsunori Yamada, 2010. "The Relative Utility Hypothesis With and Without Self-reported Reference Wages," Working Papers 2010-19, Banco de México.
  4. Cruces, Guillermo & Perez Truglia, Ricardo & Tetaz, Martin, 2011. "Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment," IZA Discussion Papers 5699, Institute for the Study of Labor (IZA).
  5. Ilyana Kuziemko & Ryan W. Buell & Taly Reich & Michael I. Norton, 2011. ""Last-place Aversion": Evidence and Redistributive Implications," NBER Working Papers 17234, National Bureau of Economic Research, Inc.
  6. Babcock, Philip & Bedard, Kelly & Charness, Gary & Hartman, John & Royer, Heather, 2012. "Letting Down the Team? Social Effects of Team Incentives," University of California at Santa Barbara, Economics Working Paper Series qt93n646db, Department of Economics, UC Santa Barbara.
  7. Grund, Christian & Martin, Johannes, 2012. "Monetary Reference Points of Managers: An Empirical Investigation of Status Quo Preferences and Social Comparisons," IZA Discussion Papers 7097, Institute for the Study of Labor (IZA).
  8. Adeline Delavande & Basit Zafar, 2013. "Gender discrimination and social identity: experimental evidence from urban Pakistan," Staff Reports 593, Federal Reserve Bank of New York.
  9. Goodall, Amanda H., 2012. "A Theory of Expert Leadership," IZA Discussion Papers 6566, Institute for the Study of Labor (IZA).

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