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Does Wage Rank Affect Employees’ Wellbeing?

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Author Info
Brown, Gordon D. A. () (University of Warwick)
Gardner, Jonathan (Watson Wyatt LLP)
Oswald, Andrew (University of Warwick and IZA Bonn)
Qian, Jing (University of Warwick)

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Abstract

What makes workers happy? Here we argue that pure ‘rank’ matters. It is currently believed that wellbeing is determined partly by an individual’s absolute wage (say, 30,000 dollars a year) and partly by the individual’s relative wage (say, 30,000 dollars compared to an average in the company or neighborhood of 25,000 dollars). Our evidence shows that this is inadequate. The paper demonstrates that range-frequency theory – a model developed independently within psychology and unknown to most economists – predicts that wellbeing is gained partly from the individual’s ranked position of a wage within a comparison set (say, whether the individual is number 4 or 14 in the wage hierarchy of the company). We report an experimental study and an analysis of a survey of 16,000 employees’ wage satisfaction ratings. We find evidence of rank-dependence in workers’ pay satisfaction.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1505.

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Length: 55 pages
Date of creation: Mar 2005
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Handle: RePEc:iza:izadps:dp1505

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Related research
Keywords: job satisfaction wages rank wellbeing

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Find related papers by JEL classification:
J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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  1. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," NBER Working Papers 12202, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Ed Hopkins & Tatiana Kornienko, 2006. "Methods of Social Comparison in Games of Status," Levine's Bibliography 122247000000001183, UCLA Department of Economics. [Downloadable!]
  3. Conchita D’Ambrosio & Joachim R. Frick, 2007. "Individual Well-Being in a Dynamic Perspective," IZA Discussion Papers 2618, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Andrea Patacconi & Florian Ederer, MIT, 2005. "Interpersonal Comparison, Status and Ambition in Organisations," Economics Series Working Papers 222, University of Oxford, Department of Economics. [Downloadable!]
  5. Ed Hopkins & Tatiana Kornienko, 2006. "Which Inequality? The Inequality of Resources Versus the Inequality of Rewards," Levine's Bibliography 784828000000000621, UCLA Department of Economics. [Downloadable!]
  6. Mary C. Daly & Daniel J. Wilson & Norman J. Johnson, 2007. "Relative status and well-being: evidence from U.S. suicide deaths," Working Paper Series 2007-12, Federal Reserve Bank of San Francisco. [Downloadable!]
  7. Andrew J. Oswald & Nattavudh Powdthavee, 2007. "Obesity, Unhappiness, and The Challenge of Affluence: Theory and Evidence," IZA Discussion Papers 2717, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Ana Rute Cardoso, 2005. "Big Fish in Small Pond or Small Fish in Big Pond? An Analysis of Job Mobility," IZA Discussion Papers 1900, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Benny Moldovanu & Aner Sela & Xianwen Shi, 2005. "Contests for Status," Discussion Papers 139, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
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