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Does Wage Rank Affect Employees' Wellbeing?

Author

Listed:
  • Brown, Gordon D. A.

    (University of Warwick)

  • Gardner, Jonathan

    (Watson Wyatt LLP)

  • Oswald, Andrew J.

    (University of Warwick)

  • Qian, Jing

    (University of Warwick)

Abstract
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.

Suggested Citation

  • Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1505
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    References listed on IDEAS

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    More about this item

    Keywords

    rank; wages; job satisfaction; wellbeing;
    All these keywords.

    JEL classification:

    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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