The anticipation and adaptation effects of intra- and interpersonal wage changes on job satisfaction

Abstract

This paper analyses how individual job satisfaction is affected by wage changes. In order to account for potential dynamic effects of wage changes on job satisfaction, we include lead and lag effects of wage changes in our analysis. Furthermore, we examine the role of social comparisons. This strategy allows us to account for implications of behavioural theory and permits an appropriate methodological approach.Our results indicate that wage changes have a statistically significant positive effect on job satisfaction. This effect exhibits a dynamic pattern. We observe an anticipation effect and positive, but declining effects on job satisfaction four years after the wage increase, i.e., partial adaptation. We find that an additional increase in job satisfaction is obtained when the individuals’ wage changes exceed the average wage changes for their reference group. However, this effect does not appear to persist, since it fades out two years after the wage change.