The Relative Utility Hypothesis With and Without Self-Reported Reference Wages

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis article uses survey data of 90,000 union employees working in 62 publicly-traded companies in Japan between 1990 and 2004 to study the effect of both own and self-reported reference wages on workers' subjective well-being levels. The availability of self-reported reference wages generates very robust findings that do not depend on questionable identifying assumptions. These findings confirm that higher estimates by workers of their peers' earnings are associated with lower levels of life and job satisfaction. These comparison effects are statistically and economically strong but are smaller in absolute value than the impact of workers' own wages on their own utility. We compare our results with standard tests of the relative utility hypothesis in the literature that recur to alternative proxies for comparison wages, including: (i) Mincer-predicted wages; (ii) cell averages defined over different groups within our dataset; (iii) cell wage averages estimated from an external data source; and (iv) colleagues' average wages. In spite of their potential flaws-that we discuss-these alternative empirical constructs employed in the literature do not introduce a simple classical measurement error problem and the bias attributed to this measurement error issue can go in both directions. We propose a simple IV strategy when the self-reported reference wage is not available that does not eliminate the bias but delivers a lower bound of the "true" effect. We also address the issue of endogeneity of self-reported reference wages in our subjective well-being regressions by accounting for workers' pessimistic attitudes at the workplace.

When experienced and decision utility concur: The case of income comparisons

“…de la Garza et al (2010) analyse Japanese wage data and find that the results of Mincer wage equations are not that different when using continuous income data and income as the midpoint values of banded data.…”

“…1 One alternative to researcher-defined reference-group income is to exploit instead respondent-supplied measures of reference-group income: Mayraz et al (2009), de la Garza et al (2010, and Goerke and Pannenberg (2013) all use such subjective information on cardinal referencegroup income and conclude that income comparisons do indeed affect reported satisfaction.…”

“…This is a novel validation of subjec-16 Our preferred specifications without demographic controls are then free from the classic exclusionrestrictions problem that appears in tests of income-comparison effects, such as Clark and Oswald (1996). See de la Garza et al (2010) on this point. 17 We calculated post-stratification adjusted survey sampling weights, with the weights on gender and education adjusted so that the sum of the weights equals the control total for each stratum.…”

Direct evidence for income comparisons and subjective well-being across reference groups

“…A second question relating to the same nine reference groups followed directly afterwards: "And how high is your gross income in comparison to the following people: …" Respondents were offered a five-point scale, ranging from "much lower (1)" to "much higher (5)". Since the 1 See also, for example, Knight et al (2009), de la Garza et al (2012, and Oshio/Urakawa (2014).…”

The Joneses in Japan: Income Comparisons and Financial Satisfaction

“…13 De la Garza et al (2010) test for income comparisons among Japanese union workers using a variety of reference-income variables. They also find that self-reported reference-group information (the income of people like you) provides the best fit to the data.…”