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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: Social and Behavioral Sciences;

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References

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  1. Arnaud Chevalier & Reamonn Lydon, 2002. "Estimates of the Effect of Wages on Job Satisfaction," CEP Discussion Papers dp0531, Centre for Economic Performance, LSE.
  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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  9. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
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  14. Gary Charness & Peter Kuhn, 2007. "Does Pay Inequality Affect Worker Effort? Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 693-723.
  15. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.).
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