Does Wage Rank Affect Employees’ Well-being?

Authors

  • GORDON D. A. BROWN,

    1. Department of Psychology, University of Warwick, Coventry, United Kingdom
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      The authors’ affiliations are, respectively, Department of Psychology, University of Warwick, Coventry, United Kingdom; Research and Development, Watson Wyatt Worldwide, Watson House, London Road, Reigate, Surrey, United Kingdom; Department of Economics, University of Warwick, Coventry, United Kingdom; ABC Research Group, Max Planck Institute for Human Development, Berlin, Germany. E-mail: g.d.a.brown@warwick.ac.uk. We are grateful to three anonymous referees for extremely valuable suggestions. This research was supported by grants 88/S15050 from BBSRC (UK) and grants R000239002 and R000239351 from ESRC (UK). Oswald's work was supported by an ESRC professorial fellowship. The first version of this paper was written in 2002. Opinions in this article are those of individual authors only; they do not necessarily reflect views or policies of Watson Wyatt. For helpful suggestions, we thank Dick Easterlin, Richard Freeman, Carol Graham, Larry Katz, Tatiana Kornienko, George Lowenstein, Erzo Luttmer, Karl Schag, and Frank Vella. We also thank participants in presentations at a 2003 Brookings Institution conference; Gary Becker's evening seminar at the University of Chicago; the 2005 American Economic Association Meeting in Washington, DC; and research seminars at the universities of Edinburgh, Essex, the European University Institute (Florence), Harvard, Oxford, Paris, Warwick, and York.

  • JONATHAN GARDNER,

    1. Research and Development, Watson Wyatt Worldwide, Watson House, London Road, Reigate, Surrey, United Kingdom
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  • ANDREW J. OSWALD,

    1. Department of Economics, University of Warwick, Coventry, United Kingdom
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  • JING QIAN

    1. ABC Research Group, Max Planck Institute for Human Development, Berlin, Germany
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Abstract

How do workers make wage comparisons? Both an experimental study and an analysis of 16,000 British employees are reported. Satisfaction and well-being levels are shown to depend on more than simple relative pay. They depend upon the ordinal rank of an individual's wage within a comparison group. “Rank” itself thus seems to matter to human beings. Moreover, consistent with psychological theory, quits in a workplace are correlated with pay distribution skewness.

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