Parallel session IARIW 2014

1. Discussion: Good, Better, Best: The
Social Context of Labour-market Success
Discussant:
Patricia Ruggles
Senior Fellow
IARIW Meetings
Session 8a
August 29, 2014
by
Andrew Clark and Conchita D’Ambrosio

2. Premise of Paper
• Well-being as a relative concept:
• Income
• Labor force, marital status, health issues
• Reference group matters
• Potential negative externalities of others’ success
• Reference group can have a time dimension
• Paper asks: are positive changes in labor force status (eg,
promotions) relative? And if so, in what way?
• Estimate externalities from promotions of others in
reference group
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3. Utility Function Specification
• Utility function used in paper is based on a generic utility
function where utility depends on not only the level of the
individual i’s own income at some period t, but also the
level of some comparison income measured at time t.
• Utility rises with own income but the effect of comparison
income is negative (e.g., deflates impact of own income
increases).
• Adding time-related factor: vector of past and potential
promotions (own and comparative others) added to utility
function specification
• Two versions: one models promotion prospects, other
changes on income
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4. • 1985-2012 waves of the German Socio-
Economic Panel (SOEP)
• Sample includes individuals aged16 to 64 who
are employees--208,000 observations (on
approximately 33,000 different individuals).
•Dependent variable (proxy for utility): job
satisfaction—0 to 10 scale; mean and median
both 7
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Data

5. Model Specification
• First model impact of own promotion on job
satisfaction
• Then add those of partners, others in same
occupation, region and year
• Looked at both expected promotions, as well as
income impacts of past promotions
• Within each panel of survey, results based on
probit regressions on job satisfaction over time
with individual time-invariant fixed effects
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6. General Results
•Results are consistent with the premises of the
indirect utility function, with satisfaction rising with
labor income but falling with hours of work.
• Satisfaction U-shaped with respect to age; men
less satisfied than women (holding wages and
hours constant)
•Relative estimated coefficients on income and
hours of work are similar in size across the
pooled and panel estimates
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7. Results on Impacts of Own Promotion Probability
• Three measures of promotion probability, due to question
changes in SOEP
• In general, greater probability of promotion is associated
with higher job satisfaction
• The addition of promotion probabilities to the job
satisfaction regression does not seem to make much
difference to the size of the coefficient on own labor
income.
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8. Relative Impacts of Promotion Probability
• Own promotion probabilities still have positive impact if
spouse’s probabilities are included, but spouse’s better
opportunities reduce own satisfaction
• However, higher spouse’s opportunities increase
importance of own promotion prospects (although not
always significantly)
• Similar but smaller impacts for promotion opportunities of
other reference group—occupation/region/year cohort
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9. Impacts of Others’ Income
• Partner’s income generally has a negative impact on own
job satisfaction
• Earning more than partner increases satisfaction
• Having a larger increase in your earnings than in your
spouse’s also increases job satisfaction
• For occupational group comparisons—having a larger
increase than the average for your occupation increases
satisfaction
• This effect is larger than effect of spouse’s relative income
• For men, being in a job with high increases overall is
associated with lower satisfaction, but not for women
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10. Authors’ Conclusions
• At face value—confirms hypothesis that the impacts of
promotions and of changes in income on an individual’s
own job satisfaction are at least partly relative, just as
income effects on satisfication in general have been
shown to be
• Authors note that it is likely that there is heterogeneity in
individuals' propensity to carry out comparisons; some
evidence of differences between men and women, and
may be other personality-related factors
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11. Comments: My Conclusions
• Authors’ conclusions are interesting, but possibly not
especially surprising—envy is known to be a human
characteristic, and it is natural to envy those who are
most similar and/or most available for comparison
• It is also not surprising that individuals who are in a
position to experience such envy are less satisfied than
those who are on the winning side of the equation
• Broader question—why should we care? Authors—
possible implications for human resources strategies; but
are there any that relate to economic or social justice?
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12. Comments: Implications of Results
• As with last paper, results are interesting, but I’m not
sure what they have to do with economic or social justice
• I’m pretty sure envy is not a curable human condition
• It’s not clear to me that justice would be increased even
if we could keep people’s satisfaction from being
reduced by others’ good fortune or success
• Is the implication here that a less competitive society
would be a happier one?
• Even if that were so, is it incumbent on policy makers to
attempt social changes that may theoretically reduce
unhappiness, even if the causes of that unhappiness
have nothing to do with social policy?
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