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Within-establishment wage inequality and satisfaction

  • Poggi, Ambra
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    The aim of this paper is to provide fresh empirical evidence on the mechanisms through which wage inequality affects worker satisfaction.Theoretically, the wages of others may affect workers' utility for two main reasons: Workers may derive well-being from their social status (the comparison effect) and/or they may use others' wages to help predict their own future wage (the information effect). The author tests both hypotheses. To do this, she models individual utility from pay as a function of a workers own wage and the earnings of all other workers within the same establishment, and she estimates the model using matched British employeremployee data. The author assumes incomplete information about others' wages. She finds that the comparison effect matters. Interestingly, she also provides some evidence on a positive relation between well-being and inequality. Her results are robust to different specifications and different definitions of the reference group.

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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2014-4
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    File URL: http://econstor.eu/bitstream/10419/91616/1/77754539X.pdf
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    Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

    Volume (Year): 8 (2014)
    Issue (Month): ()
    Pages: 1-21

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    Handle: RePEc:zbw:ifweej:20144
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    1. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
    2. M Patterson & P Warr & M West, 2004. "Organizational Climate and Company Productivity: the Role of Employee Affect and Employee Level," CEP Discussion Papers dp0626, Centre for Economic Performance, LSE.
    3. P. J. Sloane & H. Williams, 2000. "Job Satisfaction, Comparison Earnings, and Gender," LABOUR, CEIS, vol. 14(3), pages 473-502, 09.
    4. Seidl, Christian & Traub, Stefan & Morone, Andrea, 2005. "Relative Deprivation, Personal Income Satisfaction, and Average Well-being under Different Income Distributions," Working Paper Series RP2005/04, World Institute for Development Economic Research (UNU-WIDER).
    5. Clark, Andrew E. & Kristensen, Nicolai & WestergÄrd-Nielsen, Niels C., 2008. "Economic Satisfaction and Income Rank in Small Neighbourhoods," IZA Discussion Papers 3813, Institute for the Study of Labor (IZA).
    6. Angus Deaton, 2002. "Health, inequality, and economic development," Working Papers 209, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    7. Hirschman, Albert O & Rothschild, Michael, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 544-66, November.
    8. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    9. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, vol. 60(4), pages 837-57, July.
    10. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
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