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Pay Growth, Fairness, and Job Satisfaction: Implications for Nominal and Real Wage Rigidity

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  • Jennifer C. Smith

Abstract

Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a first step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult effect, except when similar workers have real wage reductions or when firm production is falling. Nominal pay cuts appear to be insulting even when the firm is doing badly.

Suggested Citation

  • Jennifer C. Smith, 2015. "Pay Growth, Fairness, and Job Satisfaction: Implications for Nominal and Real Wage Rigidity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 852-877, July.
    • Handle: RePEc:bla:scandj:v:117:y:2015:i:3:p:852-877
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    File URL: http://hdl.handle.net/10.1111/sjoe.12091
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    Cited by:

    1. Fongoni, Marco & Dickson, Alex, 2015. "A Theory of Wage Setting Behavior," SIRE Discussion Papers 2015-57, Scottish Institute for Research in Economics (SIRE).
    2. Fongoni, Marco, 2024. "Does pay inequality affect worker effort? An assessment of experimental designs and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 697-716.
    3. Lassaad Abdelmoula & Sami Boudabbous, 2019. "Drivers of the Professional Accountants’ Satisfaction in Tunisian Context," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(2), pages 183-197, April.
    4. Angela Ewhonne Nwaomah, 2025. "An Evaluative Study of Management Practices and the Effects on Employees Performance and Attitude," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(14), pages 260-273, February.
    5. Christian Grund & Johannes Martin, 2017. "Monetary Reference Points of Managers – Empirical Evidence of Status Quo Preferences and Social Comparisons," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(1), pages 70-87, February.
    6. Diriwaechter, Patric & Shvartsman, Elena, 2018. "The anticipation and adaptation effects of intra- and interpersonal wage changes on job satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 116-140.
    7. Fongoni, Marco & Dickson, Alex, 2015. "A Theory of Wage Setting Behavior," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-57, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Junjie Gao & Lyubing Feng & Xianguo Yao, 2021. "Information Transmission Mechanism of Inequality of Opportunity and Effort on Settlement Intention," Sustainability, MDPI, vol. 13(8), pages 1-17, April.
    9. Drakopoulos, Stavros A. & Grimani, Katerina, 2015. "The Effect of Pay Cuts on Psychological Well-Being and Job Satisfaction," MPRA Paper 61195, University Library of Munich, Germany.
    10. Fallick, Bruce & Villar, Daniel & Wascher, William, 2022. "Downward nominal wage rigidity in the United States in times of economic distress and low inflation," Labour Economics, Elsevier, vol. 78(C).
    11. Mehmet Güney Celbiş & Pui-Hang Wong & Karima Kourtit & Peter Nijkamp, 2023. "Job Satisfaction and the ‘Great Resignation’: An Exploratory Machine Learning Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 170(3), pages 1097-1118, December.
    12. Muhammad Umair Farzand & Muhammad Zia-ud-Din & Maria Rabia Haq & Shahpara Rajvi, 2018. "The Effect of Pay Inequality on Organizational Citizenship Behavior in Textile Sectors of Pakistan," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(7), pages 269-280, July.
    13. Marco Fongoni, 2022. "Does Pay Inequality Affect Worker Effort? An Assessment of Existing Laboratory Designs," AMSE Working Papers 2230, Aix-Marseille School of Economics, France.
    14. Poeschel, Friedrich, 2018. "Why do employers not pay less than advertised? Directed search and the Diamond paradox," MPRA Paper 87920, University Library of Munich, Germany.
    15. Kraft, Kornelius & Lammers, Alexander, 2021. "The Effects of Reforming a Federal Employment Agency on Labor Demand," IZA Discussion Papers 14629, Institute of Labor Economics (IZA).
    16. Hammermann, Andrea & Mohnen, Alwine, 2012. "Who Benefits from Benefits? Empirical Research on Tangible Incentives," IZA Discussion Papers 6284, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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