Wage Comparisons in and out of the Firm. Evidence from a Matched Employer-Employee French Database

This paper looks at the association between wage satisfaction and different notions of reference wage, based on a matched employer-employee dataset. It shows that workers' satisfaction depends on otherpeople's income in different ways. Relative income concerns are important, but we also find robust evidence of signal effects. For instance, workers are happier the higher the median wage in their firm, holding their own wage constant. This is true of all employees, whatever their relative position in the firm. This signal effect is stronger for young people and for women. These findings are based on objective measures of earnings as well as subjective declarations about wage satisfaction, awareness of other people's wage and reported income comparisons.