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| Author: | Clark, A. E. |
| Title: | Are wages habit-forming ? evidence from micro data |
| Journal: | Journal of Economic Behavior and Organization
1999 : JUN, VOL. 39:2, p. 179-200 |
| Index terms: | Pay Job satisfaction Employees |
| Language: | eng |
| Abstract: | Although utility functions play a central role in economics, the axiom that utility depends only on the absolute levels of its arguments is rarely tested. This paper uses panel data on 2000 British employees who remain with the same employer and who are not promoted from one wave to the next. It is shown that one important measure of well-being, overall job satisfaction, is strongly positively correlated with the change in the worker's pay btw. waves, but is unrelated to the current level of pay. Empirical tests suggest that a reference-dependent satisfaction function, where individual well-being depends on current pay relative to past pay, is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles. There is also evidence presented, related to greater job satisfaction effects. |
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