IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Does Wage Rank Affect Employees' Wellbeing?

  • Brown, Gordon D. A.

    ()

    (University of Warwick)

  • Gardner, Jonathan

    ()

    (Watson Wyatt LLP)

  • Oswald, Andrew J.

    ()

    (University of Warwick)

  • Qian, Jing

    ()

    (University of Warwick)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp1505.pdf
Download Restriction: no

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

as
in new window

Length: 55 pages
Date of creation: Mar 2005
Date of revision:
Publication status: published in: Industrial Relations, 2008, 47 (3), 355-389
Handle: RePEc:iza:izadps:dp1505
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Diecidue, Enrico & Wakker, Peter P, 2001. " On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-98, November.
  2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  3. Cox, James C & Oaxaca, Ronald L, 1989. " Laboratory Experiments with a Finite-Horizon Job-Search Model," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 301-29, September.
  4. Daniel S. Hamermesh, 2001. "The Changing Distribution of Job Satisfaction," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 1-30.
  5. Angus Deaton, 2001. "Relative Deprivation, Inequality, and Mortality," NBER Working Papers 8099, National Bureau of Economic Research, Inc.
  6. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, vol. 83(5), pages 1241-59, December.
  7. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  8. Shields, Michael A. & Ward, Melanie, 2001. "Improving nurse retention in the National Health Service in England: the impact of job satisfaction on intentions to quit," Journal of Health Economics, Elsevier, vol. 20(5), pages 677-701, September.
  9. Alois Stutzer, . "The Role of Income Aspirations in Individual Happiness," IEW - Working Papers 124, Institute for Empirical Research in Economics - University of Zurich.
  10. Markus Knell, . "Social Comparisons, Inequality, and Growth," IEW - Working Papers 005, Institute for Empirical Research in Economics - University of Zurich.
  11. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  12. Kockesen, Levent & Ok, Efe A., 1997. "Negatively Interdependent Preferences," Working Papers 97-02, C.V. Starr Center for Applied Economics, New York University.
  13. Hamermesh, Daniel S, 1975. "Interdependence in the Labour Market," Economica, London School of Economics and Political Science, vol. 42(168), pages 420-29, November.
  14. Clark, Andrew E., 2001. "What really matters in a job? Hedonic measurement using quit data," Labour Economics, Elsevier, vol. 8(2), pages 223-242, May.
  15. Van Praag, Bernard, 1971. "The welfare function of income in Belgium: An empirical investigation," European Economic Review, Elsevier, vol. 11(3), pages 337-369.
  16. Seidl, Christian & Traub, Stefan & Morone, Andrea, 2003. "Relative Deprivation, Personal Income Satisfaction, and Average Well-Being under Different Income Distributions," Economics Working Papers 2003,05, Christian-Albrechts-University of Kiel, Department of Economics.
  17. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  18. Lommerud, Kjell Erik, 1989. "Educational Subsidies When Relative Income Matters," Oxford Economic Papers, Oxford University Press, vol. 41(3), pages 640-52, July.
  19. Freeman, Richard B, 1978. "Job Satisfaction as an Economic Variable," American Economic Review, American Economic Association, vol. 68(2), pages 135-41, May.
  20. Giacomo Corneo, 2000. "The Efficient Side of Progressive Income Taxation," CESifo Working Paper Series 364, CESifo Group Munich.
  21. Niedrich, Ronald W & Sharma, Subhash & Wedell, Douglas H, 2001. " Reference Price and Price Perceptions: A Comparison of Alternative Models," Journal of Consumer Research, University of Chicago Press, vol. 28(3), pages 339-54, December.
  22. 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.
  23. Ward, Melanie E & Sloane, Peter J, 2000. "Non-pecuniary Advantages versus Pecuniary Disadvantages; Job Satisfaction among Male and Female Academics in Scottish Universities," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(3), pages 273-303, August.
  24. Corneo, Giacomo & Jeanne, Olivier, 2001. " Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 283-93, June.
  25. David K Levine, 1997. "Modeling Altruism and Spitefulness in Experiments," Levine's Working Paper Archive 2047, David K. Levine.
  26. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  27. 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.
  28. Kapteyn, Arie & Wansbeek, Tom, 1985. "The individual welfare function : A review," Journal of Economic Psychology, Elsevier, vol. 6(4), pages 333-363, December.
  29. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  30. David Schmeidler & Itzhak Gilboa, 1996. "A Cognitive Model of Individual Well-Being," Working Papers 029, Ohio State University, Department of Economics.
  31. Andrew Clark, 2001. "Unemployment As A Social Norm: Psychological Evidence from Panel Data," DELTA Working Papers 2001-17, DELTA (Ecole normale supérieure).
  32. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
  33. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  34. Birnbaum, Michael H & Navarrete, Juan B, 1998. "Testing Descriptive Utility Theories: Violations of Stochastic Dominance and Cumulative Independence," Journal of Risk and Uncertainty, Springer, vol. 17(1), pages 49-78, October.
  35. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  36. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  37. repec:ner:tilbur:urn:nbn:nl:ui:12-364330 is not listed on IDEAS
  38. Munro, Alistair & Sugden, Robert, 2003. "On the theory of reference-dependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 407-428, April.
  39. Janiszewski, Chris & Lichtenstein, Donald R, 1999. " A Range Theory Account of Price Perception," Journal of Consumer Research, University of Chicago Press, vol. 25(4), pages 353-68, March.
  40. Mellers, Barbara A. & Ordonez, Lisa D. & Birnbaum, Michael H., 1992. "A change-of-process theory for contextual effects and preference reversals in risky decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 52(3), pages 331-369, August.
  41. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November.
  42. repec:ner:tilbur:urn:nbn:nl:ui:12-364325 is not listed on IDEAS
  43. Kakwani, Nanak, 1984. "The Relative Deprivation Curve and Its Applications: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 400-405, October.
  44. de la Croix, David, 1998. "Growth and the relativity of satisfaction," Mathematical Social Sciences, Elsevier, vol. 36(2), pages 105-125, September.
  45. Rees, Albert, 1993. "The Role of Fairness in Wage Determination," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 243-52, January.
  46. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  47. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December.
  48. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
  49. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
  50. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  51. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
  52. Starmer, Chris & Sugden, Robert, 1993. " Testing for Juxtaposition and Event-Splitting Effects," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 235-54, June.
  53. Lim, Rodney G., 1995. "A Range-Frequency Explanation of Shifting Reference Points in Risky Decision Making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(1), pages 6-20, July.
  54. Seidl, Christian, 1994. "How sensible is the Leyden individual welfare function of income?," European Economic Review, Elsevier, vol. 38(8), pages 1633-1659, October.
  55. Oswald, Andrew J., 1983. "Altruism, jealousy and the theory of optimal non-linear taxation," Journal of Public Economics, Elsevier, vol. 20(1), pages 77-87, February.
  56. Kakwani, Nanak, 1984. "The Relative Deprivation Curve and Its Applications," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 384-94, October.
  57. Konrad, Kai A. & Lommerud, Kjell Erik, 1993. "Relative standing comparisons, risk taking, and safety regulations," Journal of Public Economics, Elsevier, vol. 51(3), pages 345-358, July.
  58. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
  59. van de Stadt, Huib & Kapteyn, Arie & van de Geer, Sara, 1985. "The Relativity of Utility: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 179-87, May.
  60. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  61. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, 01.
  62. Samuelson,L. & Swinkels,J.M., 2001. "Information and the evolution of the utility function," Working papers 6, Wisconsin Madison - Social Systems.
  63. repec:ner:tilbur:urn:nbn:nl:ui:12-364727 is not listed on IDEAS
  64. Rosen, Sherwin, 1984. "The Relative Deprivation Curve and Its Applications," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 395-97, October.
  65. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  66. Humphrey, Steven J, 1995. "Regret Aversion or Event-Splitting Effects? More Evidence under Risk and Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 11(3), pages 263-74, December.
  67. Weber, Elke U & Kirsner, Britt, 1997. "Reasons for Rank-Dependent Utility Evaluation," Journal of Risk and Uncertainty, Springer, vol. 14(1), pages 41-61, January.
  68. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  69. Wim Groot & Henriette Maassen Van Den Brink, 1999. "Overpayment and earnings satisfaction: an application of an ordered response Tobit Model," Applied Economics Letters, Taylor & Francis Journals, vol. 6(4), pages 235-238.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1505. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.