Does Wage Rank Affect Employees' Wellbeing?

55 Pages Posted: 8 Mar 2005

See all articles by Gordon D. A. Brown

Gordon D. A. Brown

University of Warwick - Department of Psychology

Jonathan Gardner

Towers Watson

Andrew J. Oswald

University of Warwick - Department of Economics; IZA Institute of Labor Economics

Jing Qian

University of Warwick

Date Written: March 2005

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.

Keywords: job satisfaction, wages, rank, wellbeing

JEL Classification: J28, J30

Suggested Citation

Brown, Gordon D. A. and Gardner, Jonathan and Oswald, Andrew J. and Qian, Jing, Does Wage Rank Affect Employees' Wellbeing? (March 2005). IZA Discussion Paper No. 1505. Available at SSRN: https://ssrn.com/abstract=678868

Gordon D. A. Brown (Contact Author)

University of Warwick - Department of Psychology ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Jonathan Gardner

Towers Watson ( email )

Watson House
London Road
Reigate, Surrey RH2 9PQ
United Kingdom
+44 1737 274097 (Phone)

Andrew J. Oswald

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
523510 (Phone)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Jing Qian

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

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