Pay Level Comparisons in Job Satisfaction Research and Mainstream Economic Methodology

Abstract

Although social scientists have been investigating the nature and impact of job satisfaction for many decades, economists only started to investigate job satisfaction systematically in the late 1980′s. Almost from the first systematic studies of job satisfaction by economists, the research potential of the notion of pay level comparisons was realized. The idea of pay level comparisons in job satisfaction has proven particularly useful also because it has important implications for a number of standard theoretical and economic policy results. However, the inclusion of the variable of comparison wage in job satisfaction and the resulting supporting empirical findings, are in sharp contrast to the orthodox approach, given that in mainstream economic theory an individuals’ utility is usually assumed to be a function of absolute income only. Despite the important theoretical and policy implications, mainstream economic theory has not paid much heed to the job satisfaction conceptual formulations and empirical findings. The paper argues that there are methodological reasons for this state of affairs which seem to be linked to the subjective well-being research in general, and to the job satisfaction literature in particular. A strong mistrust against the method of stated preferences and the still inherent methodological bias against the integration of psychological findings, are suggested as the two prime reasons. Although a few prominent figures in job satisfaction research have realized the mainstream methodological attitude, it is necessary that job satisfaction specialists should consider more seriously the methodological limitations of traditional mainstream economics that relate to their research field.

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Notes

  1. 1.

    For a historical account of psychological research on job satisfaction, see Latham and Budworth 2007.

  2. 2.

    The idea that people compare their incomes with others, has a continuous presence in the history of economics. It can be found for example, in the works of T. Veblen, A.C. Pigou and J. Duesenberry. However, it has not made significant inroads into mainstream theory (for a detailed discussion, see Drakopoulos 2016).

  3. 3.

    For a discussion of the definition and nature of mainstream economics, see Lawson 2006.

  4. 4.

    Apart from the economics literature, psychological studies have also identified a number of crucial job satisfaction determinants such as salary, job autonomy, opportunities for promotion, quality of supervision, and good working conditions (e.g. Barling et al. 2003).

  5. 5.

    A representative statement in this respect can be found in Robert Frank: “In traditional economic models, individual utility depends only on absolute consumption. These models lie at the heart of claims that pursuit of individual self-interest promotes aggregate welfare.” (Frank 2005: 137).

  6. 6.

    It is also interesting to note that the authors point out that economists have paid little attention to the relevant psychological findings (Caplin and Leahy 2001: 55).

  7. 7.

    Status effects have been found for Great-Britain (Sloane and Williams 2000), Germany (Ferrer-i-Carbonell 2005), Sweden (Bygren 2004), Europe (Senik 2008; Clark and Senik 2010). See also Warr (2007) for a survey.

  8. 8.

    The case of corrective taxes is also weakened in the framework of mental goods and bads (for a detailed discussion, see Ho 2016).

  9. 9.

    In more technical terms: The additional tax paid by an individual who does an extra hour of work should equal the money value of the harm done to others in terms of status. It is also worth noticing that in the extreme case where net income is not valued for its own sake at all and all persons have the same wage, the optimal marginal tax is unity (for a detailed discussion, see Layard 1980: 738–739).

  10. 10.

    In support of this point, researchers have found that other factors like specific government policies have strong effects on happiness (see for instance, Bok 2011; Ott 2011).

  11. 11.

    There is a large literature on this important issue. A few recent indicative examples are: Akerlof 1997; Sen 2002; Sobel 2005; Davis 2010; Postlewaite 2011; Heffetz and Frank 2011.

  12. 12.

    I am grateful for this point to an anonymous referee.

  13. 13.

    For other types of defense of mainstream economics against the “attacks” by behavioural economists and psychologists, see McKenzie 2010.

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Acknowledgements

The author wishes to thank Prof. Y. Venieris and two anonymous referees of this Journal for useful comments and suggestions. The usual disclaimer applies.

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Drakopoulos, S.A. Pay Level Comparisons in Job Satisfaction Research and Mainstream Economic Methodology. J Happiness Stud 21, 825–842 (2020). https://doi.org/10.1007/s10902-019-00111-z

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Keywords

  • Job satisfaction
  • Pay level comparisons
  • Wages
  • Economic methodology

JEL Classification

  • J28
  • B4
  • I31
  • J30