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Job Satisfaction and Co-worker Wages: Status or Signal?*

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  • *

     We are very grateful to the Editor and two anonymous referees for particularly constructive suggestions. We also thank Tor Eriksson, Ada Ferrer-i-Carbonell, Carol Graham, Takao Kato, Andrew Oswald and seminar participants at Amsterdam, the DTI Conference ’New Perspectives on Job Satisfaction and Subjective Well-Being at Work’ (London), the 8th ISQOLS Conference (San Diego), the 24th JMA (Fribourg), Lyon 2, Rennes I, the Royal Economic Society Conference (Warwick), the Tinbergen Institute Workshop ’Economics of the Workplace’ at Rotterdam (especially our discussant Mirjam van Praag) and the 2006 SOLE meetings (Cambridge, MA) for useful comments.

Abstract

We use matched employer–employee panel data to show that individual job satisfaction is higher when other workers in the same establishment are better-paid. This runs counter to substantial existing evidence of income comparisons in subjective well-being. We argue that the difference hinges on the nature of the reference group. Here we use co-workers. Their earnings not only induce jealousy but also provide a signal about the worker's own future earnings. In our data, this positive future earnings signal outweighs any negative status effect. This phenomenon is stronger for men and in the private sector but weaker for those nearer retirement.

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