Arbeitspapier

Reference dependent preferences and the impact of wage increases on job satisfaction: theory and evidence

The impact of wage increases on job satisfaction is explored theoretically and empirically. To do this, we apply a utility function that rises with the absolute wage level as well as with wage increases. It is shown that when employees can influence their wages by exerting effort, myopic utility maximization directly implies increasing and concave shaped wage profiles. Furthermore, employees get unhappier over time staying on a certain job although wages increase. Using data from 19 waves of the German Socio-Economic Panel we find empirical support for both the form of the utility function and the decreasing job satisfaction patterns.

Language
Englisch

Bibliographic citation
Series: IZA Discussion Papers ; No. 1879

Classification
Wirtschaft
Personnel Economics: Labor Management
Safety; Job Satisfaction; Related Public Policy
Wages, Compensation, and Labor Costs: General
Personnel Management; Executives; Executive Compensation
Subject
job satisfaction
wage increases
wage profiles
reference dependent utility
habit formation
loss aversion
Lohnniveau
Leistungsmotivation
Nutzenfunktion
Panel
Schätzung
Deutschland

Event
Geistige Schöpfung
(who)
Grund, Christian
Sliwka, Dirk
Event
Veröffentlichung
(who)
Institute for the Study of Labor (IZA)
(where)
Bonn
(when)
2005

Handle
Last update
20.09.2024, 8:25 AM CEST

Data provider

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Object type

  • Arbeitspapier

Associated

  • Grund, Christian
  • Sliwka, Dirk
  • Institute for the Study of Labor (IZA)

Time of origin

  • 2005

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