Relative Wage Positions and Quit Behavior: Evidence from Linked Employer-Employee Data

The authors analyze the importance of relative wage positions within firms in western Germany in the context of individual quit decisions as an inverse measure of job satisfaction. Using a linked employer-employee data set (LIAB) for the years 1996–2005 whose sample consists of full-time male prime-age workers in western Germany without college degrees, they ascertain whether workers find status or signal effects stronger motivators for quit decisions. They find that workers with higher relative wage positions within their firms are, on average, more likely to quit their jobs than those with lower relative wage positions and that workers who experience a loss in their relative wage positions are also more likely to accept a wage cut associated with their job transition. Overall, results suggest that a signal effect is, on average, stronger than a status effect.