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 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 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 basic components of mainstream economic methodology that relate to their research field.

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“…To a large degree, this effect might be rooted in the fact that the effects of wages on job satisfaction also depend on how an employee's wage compares with peers' wages (e.g., Brown et al., 2008; Kosteas, 2011). These findings have their roots in individuals evaluating their own wages on the basis of comparison groups or expected wages (Drakopoulos, 2019; Grund & Rubin, 2017; Layard, 1980). Therefore, we hypothesised: Wage increases will have a positive but marginally decreasing effect on job satisfaction (Hypothesis 4) .…”