Thesis-IoannisApostolopoulos

Erasmus University Rotterdam
Erasmus School of Economics
MSc Economics and Business
Accounting, Auditing and Control
Master Thesis
The Effects of Necessary Wage Cuts on Employees’ Job Satisfaction
Abstract
Employees are an asset of high importance for every organization and
thus, employees’ job satisfaction is a concept of great interest. The
purpose of this paper is to examine if there is a difference in employees’
job satisfaction between a group of employees who experienced
necessary wage cuts for the organization’s survival and a group of
employees who experienced avoidable wage cuts for the organization’s
survival. Firstly, this study presents the theoretical framework of wage
cuts and job satisfaction. Furthermore, this study utilizes a survey
methodology with respondents being employed in a recessionary period.
The findings of this research indicate that if employees perceive wage
cuts as necessary for the organization’s survival, then overall job
satisfaction scores are higher than the employees who perceive wage
cuts as avoidable for the organizations’ survival. Additionally, it is argued
that Job Security is the main contemporary employees’ concern. Finally,
this study may be relevant to managers as it indicates how behavioral
economics can be used, so wage cuts can be implemented without
demotivating and dissatisfying their employees.
Keywords: Wage Cuts, Job Satisfaction, Recession, Job Security.
Author: Ioannis Apostolopoulos
Student number: 367397
Supervisor: Roeland H. R. Aernoudts

Table of Contents
Chapter 1: Introduction................................................................................................................4
1.1 Motivation .......................................................................................................................5
1.2 Scientific and practical relevance....................................................................................6
1.3 Thesis structure ......................................................................................................................7
Chapter 2: Literature review ........................................................................................................8
2.1 Wage comparison theories ....................................................................................................8
2.2 Maslow's Hierarchy of Needs...............................................................................................13
2.3 Environment and Organization ............................................................................................14
2.4 Job security...........................................................................................................................15
2.5 Organization’s policies and procedures...............................................................................16
2.6 Work Morale.........................................................................................................................17
2.7 Job Satisfaction.....................................................................................................................17
2.8 The relation between job satisfaction and job performance..............................................18
2.9 Wage cuts and performance ................................................................................................19
2.10 Conclusion of the Literature Review..................................................................................20
Chapter 3: Research Hypotheses ...............................................................................................25
Chapter 4: Research Methodology ............................................................................................29
4.1 Design ...................................................................................................................................29
4.2 Sampling ...............................................................................................................................30
4.3 Instrumentation....................................................................................................................32
4.4 Procedures............................................................................................................................34
4.5 Data analysis.........................................................................................................................35
4.6 Limitations............................................................................................................................35
4.7 Summary...............................................................................................................................35
Chapter 5: Results and discussion..............................................................................................36
5.1 Interpretation of demographic data....................................................................................36
5.2 Discussion of the first hypothesis ........................................................................................36
5.2.1 Principal Component Analysis for the first hypothesis ....................................................37
5.2.2 Independent Samples T-Test for the first hypothesis.......................................................45
5.3 Discussion of the second hypothesis...................................................................................46
5.3.1 One-way between groups ANOVA for the second hypothesis.........................................46
Chapter 6: Conclusion ................................................................................................................49
6.1 Scientific and managerial Implications................................................................................50
6.2 Limitations and future research...........................................................................................51
References ..................................................................................................................................53
Appendix.....................................................................................................................................62
List of Figures..............................................................................................................................62
List of Tables ...............................................................................................................................68
Questionnaire.............................................................................................................................83
Employee Satisfaction Survey A.................................................................................................83
Employee Satisfaction Survey B.................................................................................................88

Acknowledgements:
First of all I would like to acknowledge my gratitude to my supervisor Roeland H. R.
Aernoudts for his tireless support, guidance, patience and persistence during the
thesis development. I would also like to express my gratitude to my parents for
supporting me throughout my studies at the Erasmus University, for their help
through sharing relevant knowledge on the thesis topic and for exchanging several
valuable and alternative points of view throughout the thesis development. I would
like to thank my dear friend Chrysa for the relaxing moments and for sharing a
second opinion on my thesis development. Finally, I would like to thank my friends
for the enjoyable moments during the thesis writing.

Chapter 1: Introduction
This is a study for private organizations in Greece, a country under economic
recession. Since 2010, Greek government forwarded a long-term austerity program
something that had a great knock-on impact on the overall Greek economy. The
evaporation of liquidity resulted in the freeze of market. Thus, organizations faced
profits reductions and a high risk of bankruptcy.
In times of recession an increased number of organizations struggle to remain
profitable and competitive. Organizations are aware of the importance of having a
healthy business strategy to guide them through recessionary times. As Anthony et al
(2005) indicated that introducing a cost control system or cost management which is
defined as a set of accounting methods and management techniques can improve
business cost efficiency. Therefore, managers may need to reorganize and restructure
their organizations. Salaries and wages are usually one of the most significant costs
of companies and cutting costs there are usually the easiest way to improve an
organization’s profitability. Thus, cutting costs by decreasing the employees’ wages
can significantly improve the company’s profitability. On the other hand, imposing
wage cuts may lead to undesirable issues for the organization. As explained by
Oshagbemi, (2000) wage, salary or pay is considered as a significant reward to
motivate the workers and their behavior towards achieving the goals of an employer.
Thus, imposing wage cuts may negatively influence employees’ work morale and job
satisfaction, something that may lead to underperformance and reduced
organization’s profitability. But what happens if the wage cuts are necessary for the
survival of the organization?
In this study is examined if there is a difference in employees’ job satisfaction
between a group of employees who experienced necessary wage cuts for the
organization’s survival and a group of employees who experienced avoidable wage
cuts for the organization’s survival. Thus, the research question of this study is
highlighted:

“Can employees’ job satisfaction be preserved after the implementation of necessary
for the survival of the organization wage cuts?”
In order to understand what job satisfaction is, an explanation of its main
determinants is required. As Locke, (1976) asserts, job is an interrelationship of tasks,
role, responsibilities, interactions, incentives and rewards. Therefore, job satisfaction
depends on the evaluation of many dimensions, which are classified in three
measures: work, context, and rewards. For instance, Bewley, (1999) found that job
satisfaction is affected not only by actual salary but also by reference salary. This
suggest that employees compare their salary with the salary of their peers, for
instance with employees of the same firm or of other firms with common context of
job. On the same hand, a number of researchers stated that there are several
determinants of job satisfaction. As Akerlof, (1982) indicated, high unemployment
triggers effort since workers are satisfied to be employed in a country facing
economic recession. Thus, the current literature suggests mixed modifiers of job
satisfaction.
1.1Motivation
This study is motivated by the paper of Kube, Maréchal & Puppe, (2011, p 20):
“Future studies may also explore the determinants of the emotional state. Wage cuts
may be perceived differently during a recession if workers understand that the wage
cuts are necessary for the company to stay afloat (or to avoid layoffs).”
Economic change is a fact of life and economic history includes variations of
economic status. Some years are prosperous, others dull and still others depressed.
For instance, leading figures such as unemployment, wage and price levels fluctuate
over time. Economies have a cyclical behavior - the natural variation of economy
between expansion periods (growth) and contraction periods (recession)-. As Burns
(1969, pg. 3) described, “We commonly associate economic instability with business
booms and recessions, and we have become accustomed to speaking of these

vicissitudes in economic fortune as the business cycle.” A great number of studies
examine job satisfaction and motivation of employees in periods of growth. However,
few studies have attempted to establish a relationship between wage cuts and job
satisfaction in periods of recession. Are the determinants of job satisfaction between
growth periods and recession periods the same? For instance, employees have “the
luxury” of mainly focusing on the quality of job -where the unemployment rate is
low- in periods of growth, On the other hand in recession times, an employee may
dislike his job and intend to quit but not do so because he cannot find another or
better job.
1.2Scientific and practical relevance
This study contributes to current literature as it aims to examine the determinants of
job satisfaction in a recessionary period. As Luthans, (2005, p.211) commented “Job
satisfaction is a popular research topic for the researchers in organization and
management studies particularly, organizational behavior”. However, the current
literature mainly examines job satisfaction in periods of growth. Several studies –
which are examined in the following chapters-, indicate that wage cuts decrease job
satisfaction. For instance, Bewley (1999) concluded that wage cuts may destroy
employees' trust in their firms and decrease their pay satisfaction because
employees are likely to perceive a wage cut as a betrayal. Similarly, Loewenstein and
Sicherman, (1991) observed that employees identify wage cuts as a proof that their
employers depreciate their effort. On the other hand, some researchers suggest that
austerity measures in combination with a rise of unemployment increase employees’
job satisfaction due to the fact of being employed. For instance, Akerlof and Yellen
(1990) stated that at high unemployment rates it might be expected that employees
consider the fair wage to be low because they feel satisfied to be employed. Thus,
the current literature provides mixed results that lead to a contradiction, which is
summarized as follows: On the one hand, as a general fact, wage cuts appear to
decrease job satisfaction, but in times of recession wage cuts can be accepted and
justified from the employees having as their first priority to be employed.

Further, this study expands our knowledge into the framing and the consequences of
wage cuts. In recent years, the global economic recession has caused a rise in
bankruptcy risks. An increased number of organizations struggle to remain profitable.
Thus, managers may implement wage cuts in order to avoid bankruptcy and to
remain or increase profitability. However, in the modern workplace, as Milliman et
al., (2008) concluded, human resources are the most important assets of any
organization and employee motivation is crucial to the success of any organization.
Further, it is observed that employees who have a high level of job satisfaction tend
to be more productive and become successful in their workplace. In this case,
managers who implement wage cuts face the risk of demotivating their employees,
resulting to lower employee effort and lower organization output and profits. It is
important for managers to recognize the importance of employee’s behavior under
periods of recession. Thus, this study may be relevant to managers as it tries to
indicate how behavioral economics can be used, so wage cuts are accepted without
demotivating and dissatisfying their employees.
1.3 Thesis structure
The remainder of this thesis is structured as follows. In Chapter 2, theories and the
relevant literature examining job satisfaction are discussed. In Chapter 3, the
research hypotheses derived from theory and prior research are formulated. Chapter
4 outlines the research method used in this study. Chapter 5 presents the results and
other relevant findings. Chapter 6 discusses limitations and provides suggestions for
further research. Finally, the research question is answered and the conclusion is
provided in chapter 7.

Chapter 2: Literature review
In this chapter, theories and prior studies exploring employees’ job satisfaction are
presented. As Goode & Hatt, (1952, p.8) stated “theory is a tool of science as it
defines major orientation of a phenomena (such as job satisfaction) by defining kinds
of data to be required, offers a conceptual scheme or model in which relevant facts
are systematically organized, classified and interrelated, summarizes the facts into
empirical generalizations and predicts facts and finally points to the gaps in our
knowledge”. Finally, the purpose of this chapter is to provide an overview of the
theoretical area of knowledge regarding how employees find contentment and
fulfillment at their workplace.
2.1 Wage comparison theories
People are social beings as part of several societies. Human societies are
characterized by social relations between individuals. Individuals’ behaviors and
actions are directed towards society as individuals take into account the behavior of
others. For instance, people choose to compare themselves with others, something
that influence their behavior and actions. Comparison is a fundamental component
of any human society. Similarly, if organizations can be considered as micro-societies,
then it can be assumed that comparison is also a fundamental component of any
organization. Several theories explain that employees evaluate their own outcomes
and abilities by comparing themselves to others in order to reduce environmental
uncertainty. For instance, an employee usually compare his wage with his personal
input, or with the wage of a co-employee, or with a past wage in order to assess the
fairness of his own wage. Among the most popular theories explaining job
satisfaction, theories focusing on wage comparison are highlighted such as the Equity
theory, the Equity- Discrepancy theory and the Social Comparison theory.
Festinger, (1954) introduced the Social Comparison theory which predicts that
people choose to compare themselves with others with similar abilities, jobs and

responsibilities. This theory explains how individuals evaluate their own status by
comparing themselves to others in order to reduce uncertainty and learn how to
define the self. Furthermore, Tremblay, St-Onge, & Tougouse, (1997) supported that
people would compare their pay level with someone similar to them. Thus,
employees compare their salary with the salary of their peers, for instance with
employees of the same firm or of other firms with common context of job. Studies of
wage comparisons in internal labor markets like Doeringer & Piore (1971); Gartrell
(1982); Osterman (1984) suggest that employees are aware of the wages and job
characteristics of others whose work brings them into frequent contact.
As it was mentioned before, comparison among employees is a fundamental
component of any organization. Thibaut and Kelley (1959) composed an analysis of
the comparison level. Those researchers supported that individuals evaluate their
wage by comparing it with a standard of what they feel as deserved -the
"comparison level (CL)”-. Wages falling above the comparison level are relatively
satisfying, while those falling below the comparison level are relatively unsatisfying.
Further, Thibaut and Kelley (1959) explained that among the most salient outcomes
are those for which the actor is responsible. They regarded that responsibility is a
strong determinant of the sense of deserving, therefore the “comparison level”
should approximate the average value of the outcomes over which a person is
responsible. A relative theory with the analysis of the comparison level where
satisfaction is based on employees’ perception about fairness regarding their wages
is the Discrepancy Theory.
Employees compare their actual wage with an expected wage. This is described at
the Discrepancy Theory, which was introduced by Lawler at 1973. The principle
behind this theory is the comparison of an outcome (reward) a person received
versus an expected outcome (reward). As Lawler (1973) supported comparison in
which an actual outcome is lower than an expected outcome, would result in
dissatisfaction. Thus, a comparison in which an actual outcome is equal to the

expected outcome, would result in job satisfaction. As a result, the smaller the gap
between actual and expected outcome, the more satisfied is the employee. This
theory’s philosophy is illustrated in the improvised Figure 1.
Fig. 1 Discrepancy Approach of Job Satisfaction
In addition, Jasso (1989) included the concept of wage comparisons among
employees. More specifically he described that the “comparison level” is determined
by actor's own outcomes, as well as those of other people and that it can be the
average value of all known outcomes, each outcome weighted by its salience. A
relative theory with the analysis of the Comparison Level and the Discrepancy Theory
which includes the concept of wage comparisons among co-employees is the Equity
Theory.
The Equity Theory was introduced by John Stacey Adams in 1963. Adams (1963)
stated that positive outcomes and high levels of motivation can be expected only
when employees perceive their treatment to be fair. The theory describes that
employees desire to find a balance between the ratios of their input like education,
experience, qualifications and capability to the ratio of the output like salary, rewards
and job security. Employees expect a fair return for what they contribute to their jobs,
a notion referred as the "equity norm". Their equity norm is determined after
comparing their inputs and outcomes with those of their co-employees. This is
referred as "social comparison".
A
Actual outcomes
B
Expected outcomes
A = B Employee
satisfaction
A < B Employee
dissatisfaction

Equity theory in business, introduces the concept of social wage comparison, by
which employees assess their own input/output proportion based on their
comparison with the input/outcome proportion of their co-employees. Additionally,
Equity theory is based on a principle that peoples' behaviors and actions are guided
by fairness. Thus, Equity Theory can be applied at salary administration by designing
a fair wage structure in order to achieve high levels of employees’ motivation. This
theory’s philosophy is illustrated in the improvised Figure 2.
Figure 2 Equity theory of Satisfaction
Similarly, Akerlof and Yellen (1990) introduced the fair wage-effort hypothesis, which
largely corresponds to Adams Equity theory. According to this Theory, employees
have an awareness of a fair wage and withdraw effort as their actual wage falls short
of their fair wage. This theory explains that effort depends on the relationship
between fair and actual wage. Furthermore, Akerlof and Yellen (1990) stated that at
high unemployment rates it might be expected that employees consider the fair
wage to be low because they feel satisfied to be employed. Similarly, at low
unemployment rates the fair wage can be high due to the fact that they are unlikely
to feel lucky to be employed, and so the fair wage may be high.
In addition, the Equity-Discrepancy Theory also focuses on the employee's
work-compensation relationship. The idea of this Theory was developed by Lawler in
Perceived
personal
inputs
Perceived inputs
of comparison
others
Perceived outputs
of comparison
others
B
Perceived personal
expected outcome
A
Perceived personal
actual outcome
A = B Satisfaction
A < B Dissatisfaction

1977 who introduced the combination of the features of both equity and discrepancy
theory to construct his model of facet-satisfaction. Lawler (1977) used the difference
idea of the discrepancy theory preferably to the ratio approach of the equity theory.
From the equity theory he uses the concept that in assessing the outcomes of their
inputs, employees compare it with the outcomes of ‘comparison others’ employees
with similar abilities, jobs, and inputs and this influence their satisfaction.
Thus, satisfaction is defined as the divergence between the actual outcomes an
employee received and the perceived outcome that the employee should have
received relative to the perceived outcome of ‘comparison others’. A presentation of
the simplified facet model of satisfaction introduced by Lawler is shown at the Figure
3. Furthermore this theory emphasizes that an employee’s perception of what he
should receive is influenced not only by his perceived outcome but also by his
opinion of inputs and outcomes of his ‘comparison others’.
Figure 3 Equity-Discrepancy Theory
[Adapted from Edward E. Lawler III, “Satisfaction and Behaviour”, in: Barry M. Shaw, Psychological Foundations of
Organizational Behaviour, Santa Monica, California: Goodyear Publishing Conmpany, 1977, p.99)]
Perceived personal
inputs
Perceived inputs and
outcomes of
comparison others
A
Perceived amount
that should be
received
Actual outcomes
received
Perceived outputs of
comparison others
B
Perceived amount
actually received
A = B
Satisfaction
A < B
Dissatisfaction

2.2 Maslow's Hierarchy of Needs
Maslow's hierarchy of needs is a theory in psychology proposed by Abraham Maslow
(1943) in his paper "A Theory of Human Motivation". The theory explains that human
needs are ordered and ranged from lower to higher order needs. As one need is
adequately satisfied, the individual aim to satisfy the next higher-order need until we
satisfy all five needs.
Maslow's Hierarchy of Needs is as follows:
1. Physiological Needs (basic issues of survival such as salary and stable employment)
2. Security Needs (stable physical and emotional environment issues such as benefits,
job security, safe work environment, and fair work practices)
3. “Belongingness” Needs (social acceptance issues such as friendship or cooperation
on the job)
4. Esteem Needs (positive self-image and respect and recognition issues such as job
titles and distinguished job assignments.)
5. Self-Actualization Needs (achievement issues such as workplace autonomy,
challenging work, and status on the job)
The basic idea of Maslow’s Hierarchy of Needs is that our needs are constantly
changing. As one need is met, we desire other needs. Thus, there is no one reward
factor which can remain the ‘most important’ if the world economy is constantly
changing. Further, economic crisis triggered the rethinking of the system in the
overall. The crisis' appearance has brought significant changes both in the
organizations and in the way of thinking and perception of employees. Employees
whose lowest level needs have not been met will make job decisions based on
compensation, safety, or stability concerns. Nowadays, as a result of the existing
economic situation, employees revert to satisfy their lowest level needs when these
needs are no longer met or are threatened. According to Maslow's theory, in a
recessionary period, an employee’s beginning emphasis on the lower order needs of
physiology and security makes sense.

2.3 Environment and Organization
As it was mentioned at the introduction, the economic environment in which an
organization operates has a great influence upon it. For instance, Organization
Theorists like Parsons, (1956) and Katz & Kahn, (1966) supported that organizations
are open systems subject to external influences and underlined the significance of
the dependency between organization and its environment. But what is economic
environment for an organization? The economic environment consists of external
factors in the market and the broader economy that can influence an organization.
Moreover, the economic environment plays a significant role in determining the
success or failure of an organization. As Katz & Kahn, (1966) supported, these
external influences pose a challenge by inhibiting organization’s ability to adapt to its
environment in order to remain profitable and to survive. Furthermore, Thompson
(1967) stated that a fundamental part of this adaption process involved challenging
environmental uncertainty. Reasonably, successful adaption enables the organization
to perform more effectively than would otherwise be possible.
Due to the current economic condition, it is important to explore whether or not
employee motivation is influenced by outside forces like a recession. Employees are
aware of these environmental influences something that affect their way of thinking.
As Clark, (2010) supported, during times of recession intrinsic motivators are still
important but extrinsic motivators become much more important for employees. In
times of recession it is expected that employees become more conservative and risk
averse, acting to protect their jobs. They focused on maintaining or getting their
salary. Further, Zavadsky, Hitka & Potkany, (2015) used the principles of Maslow’s
Hierarchy of Needs and concluded that in the year 2013 factors like job security and
financial incentives became more important and factors like communication, good
work team, workplace atmosphere and supervisor’s approach became less
important.
In addition, both Clark, (2010) and Zavadsky, Hitka & Potkany, (2015) agreed that

these changes towards extrinsic motivators were not caused by random effect but
they are caused by the uncertainty of the current economic situation and the
scarcity of jobs. Thus, employees may focus more on what Maslow (1954) termed
‘physiological and security needs’ and economic crisis can be considered a significant
factor causing changes in the employee motivation.
Moreover, in a recessionary period employees are aware of the general reduction at
income issues and of the low probability to find a well-paid job. Thus, it could be
assumed that they do not have great expectations for a high salary. For instance,
Akerlof and Yellen (1990) stated that at high unemployment rates it might be
expected that employees consider the fair wage to be low because they feel satisfied
to be employed. Furthermore, as Bergmann, Scarpello, & Hills, (1998) and Milkovich
& Newman, (1999) concluded, if a company’s reward system is particularly designed
with emphasis on market data, then employees will focus on outside referents to
evaluate pay satisfaction. Thus, an uncontrollable factor like recession –with negative
effects both at the welfare of the organization and the whole market- can be seen as
a fair reason to cut wages.
2.4 Job security
Economic recession as it was mentioned before, has a direct impact on both
employers and employees. A number of studies have examined the negative
consequences of being unemployed. For instance, Bennett et al, (1995) stated that
redundancy and unemployment have a significant psychological and economic
impact on those who lose their jobs. Unemployment is even associated with extreme
cases of anxiety and depression. Similarly, Couch, Jolly and Placzek, (2009) supported
that economic changes like unpaid days off, wage cuts, increased workloads and
early retirements have had a significant impact on wages, and thus on the living
standards of employees and their families. Further, high levels of unemployment
apply downward pressure on the wages of those employed.
Marques & Luna, (2011) supported in accordance with Maslow’s Hierarchy of Needs

that job security is the main contemporary concern. The fear of being the next group
to be fired places a stranglehold for employees. In today’s work situation, most
employees consider security and interest levels of their jobs to be more important
for their satisfaction than independence at work, opportunities, or large income. In
addition, Kropisvek, Jelacic & Groselj, (2011) supported that more and more
enterprises focus on meeting the need of job security outlook which is one of the
most important motivation factors at present. In a recessionary period it is crucial to
ensure job security and to build positive relationship among employees through
effective communication.
2.5 Organization’s policies and procedures.
Morale is fragile, and will deteriorate if employees feel they are being treated unfairly.
Negative perceptions of the company and the working environment can cause
qualified employees to underperform and seek opportunities elsewhere. Employee
perception is a factor with significant influence at the quality of the workplace. As
Folger and Konovsky (1989, p.128) concluded: "a key aspect of rewards systems
involves not only the what of rewards that equity theory has emphasized but also the
how emphasized by work on procedural justice". Similarly, Alexander and Ruderman
(1987) found that procedural justice had an important influence on employee
attitudes toward their reward. When employees know what is expected and believe
that poor performance levels will be addressed according to company policies are
much more likely to be as productive as possible. Thus, setting reasonable policies
and procedures in place, and applying them to all employees can positively influence
employee perception. Furthermore, a number of researchers like Alexander &
Ruderman (1987); Folger, Rosenfield & Robinson (183); Folger (1986); Lind & Tyler
(1988) and Randall & Mueller (1995) focused on firm’s policies and procedures
regarding the perception of fairness. Those researchers argued that if procedures for
determining allocations of rewards are believed to be fair, then the resulting
distributions of rewards will tend to be seen as fair, even among those who
experience negative outcomes.

2.6 Work Morale
In the modern workplace, human resources are the most important assets of any
organization and employee motivation is crucial to the success of any organization.
Firstly, the concept of employee morale is discussed. According to Bewley (1999),
morale indicates the degree to which employees willingly collaborate to employer’s
goals and is influenced by several factors like working conditions, fairness, trust,
wage structures and atmosphere. Furthermore, Bewley (1999) argues that work
morale is sensitive to the relationship between employees’ actual wage and a
reference wage. For instance, positive and negative discrepancies from the reference
wage are perceived as kind or unkind. As a result, employees reciprocate by
providing high or low effort, respectively. Reciprocity refers to how positive actions
generate more positive actions while negative actions generate more negative
actions. Employee morale and job satisfaction are inextricably linked. The more
satisfied you are in your professional capacity, the more likely your morale will be
high.
2.7 Job Satisfaction
The notion of job satisfaction is briefly discussed in prior literature where it is directly
related with needs. The causes of job satisfaction lie in the relationship between
individual and his job. As Locke, (1969) explained, satisfaction and dissatisfaction are
value responses where an individual experiences his appraisal of a situation against
his expectation of what he considers beneficial. Individual's job satisfaction can be
explained in the short run by considering his present goals. In order to accomplish
this in the long run, one would have to examine his wider values. Rosen and Rosen
(1955) viewed job satisfaction as a result of the discrepancy between percepts and
value standards. Economists have argued that satisfaction is a result of the
discrepancy between needs and outcomes. For instance, Schaffer (1953), Morse
(1953) and Porter (1962) viewed satisfaction as the result of the degree to which job
needs are perceived as being fulfilled on the job.

Employment usually implies working for money. Therefore, pay has been one of the
most extensively studied sources of motivation for work, and probably the most
manipulated by organizations in attempts to produce motivation. As Lawler, (1971)
stated, pay is one of the most important rewards that people receive from working.
In fact, pay dissatisfaction is a reliable predictor of outcomes important to
organizations, such as absenteeism and turnover. Furthermore, one of the most
important determinants of pay satisfaction beyond actual pay level is an individual’s
sense of fairness that partly results from pay comparisons. Similarly, Clark & Oswald,
(1996) found that relative pay, instead of actual pay, determines employees'
satisfaction. Thus, wage decline compared with a reference group, instead of
absolute wage decline, that causes employees’ job dissatisfaction.
2.8 The relation between job satisfaction and job performance
Several researchers discussed the concept of job performance. For instance,
Campbell, McHenry & Wise (1990) stated that job performance consists of the
employees’ observable behaviors that are relevant to the organization’s goals.
Similarly, Campbell, McCloy, Oppler, and Sager, (1993), explained that performance is
not the behaviors consequences, but the behaviors themselves. Thus, job
performance represents employees’ behaviors that can be observed. Moreover,
Kopelman, Brief & Guzzo (1990) supported that organizational performance, may
result from collective behaviors that are linked to job satisfaction, beyond individual
job performance measures.
Further, there is a strong and direct relation between job satisfaction and
performance. A number of researchers such as Johns (1991) and Schneider &
Schmitt (1986) supported that the relation between satisfaction and performance
may be stronger at the organizational level than the individual level. An organization
with employee job dissatisfaction is vulnerable to environmental threats and may
underperforms. The general concept is that when an employee is satisfied with his or
her working situation, the level of his or her performance will be higher.

For instance, Eagly and Chaiken (1993, p.12) commented “In general, people who
evaluate an attitude object favorably tend to engage in behaviors that foster or
support it, and people who evaluate an attitude object unfavorably tend to engage
in behaviors that hinder or oppose it”. As a result, favorable attitudes toward the job
should be related to improved job performance. Similarly, Milliman et al., (2008)
supported that people are the most important resources of any organization. How
they feel about their work and the results received from that work, directly impact
an organization’s performance and stability. For instance, if organization employees
are highly motivated and pro-active, they will do all the necessary actions to achieve
the organization’s performance goals as well as to address any potential challenges.
2.9 Wage cuts and performance
Significant amounts of laboratory evidence examined the concept of wage cuts.
Several researchers like Fehr et al (1993), Abeler et al (2010), or Charness (2004)
established a positive relationship between wages and employee performance.
Similarly, Akerlof (1982, p.567) concluded “ At least in part, wages are determined
by, and in turn also influence, the norms of workers’ effort; similarly, workers’ effort
is determined, at least in part, by these norms.” Furthermore, as Heneman and
Judge (2000, p.85) commented: “Research has unequivocally shown that pay
dissatisfaction can have important and undesirable impacts on numerous employee
outcomes”. The main concerns with wage cuts are the negative impact on employee
morale, effort, productivity and the increase in labor turnover.
Bewley (1999) interviewed business executives in the United States of recession of
the 1990s and found that employers evaded cutting wages as a result of their fear
that would demoralize employees and decrease their effort. Also, Bewley (1999)
concluded that wage cuts may destroy employees' trust in their firms and decrease
their pay satisfaction by “destroying their sense of identification with the firm”.
Thus, Bewley's findings indicate that wage cuts under profitable conditions will result
in subverting employees' morale because employees are likely to perceive a wage

cut as a betrayal. Similarly, Loewenstein and Sicherman, (1991) observed that
employees identify wage cuts as a proof that their employers depreciate their effort.
These findings indicate the link between wage cuts and employees' morale.
Low morale or job dissatisfaction develops an apathetic attitude at the employees
and it has been directly linked to decreased effort and job performance. The
implementation of a wage cut will cause pay dissatisfaction among the employees.
As, Bretz & Thomas (1992) found, pay dissatisfaction is connected with low
performance levels. Further, Campbell and Kamlani (1997) interviewed 184
compensation executives, about the effect of an alteration in wage on effort. The
compensation executives were asked how much effort will be decreased, if they
proceed to wage cuts by ten percent. The average answer was approximately twenty
percent. Most of managers agreed that employees will reciprocate positive for
positive and negative for negative. In addition, Howitt (2002) found that employees
provide less effort after a wage cut because in this way they punish the firm for
cutting their wages. The reciprocity norm probably indicates why managers are
reluctant to wage cuts.
Further evidence supported that pay dissatisfaction is related with several negative
outcomes. For instance, Koslowsky, Sagie, Krausz, & Singer, (1997) explained that
pay dissatisfaction is related with lateness. Further, Trevor, Gerhart, & Boudreau,
(1997); Motowidlo, (1983) concluded that pay dissatisfaction is related with
turnover. Finally Weiner (1980) linked pay dissatisfaction with absence and
Greenberg, (1993) with theft.
2.10 Conclusion of the Literature Review
In conclusion, several theories and studies were discussed to compare them in terms
of strengths and weaknesses and to provide the selection of the theory used.
Theories like Maslow Hierarchy of Needs, the Equity Theory and the Social
Comparison Theory, and concepts such as organization’s environment, job
satisfaction, job security and wage cuts are highlighted. This study aims to find out

whether in a recessionary period, employees’ job satisfaction can be perserved after
the implementation of necessary for the survival of the organization wage cuts.
Therefore, we intend to synthesize appropriate hypothesis assumptions using the
proper area of the theoretical knowledge.
The current literature suggest mixed results that come into contradiction with each
other, so there is not a clear view whether wage cuts always generate employees job
dissatisfaction. For instance, on the one hand, actual wage cuts may deteriorate
employee’s living standards, cause uncertainty, anxiety and job dissatisfaction. On
the other hand, high unemployment generates high satisfaction, since employees are
satisfied to be employed, or due to the overall decrease of reference wages which
results from the recession. Thus, it would be of interest if any differences at the
determinants of job satisfaction under recessionary times will be observed.
Every theory or study has its strengths and limitations. In this chapter, several
theories and studies are highlighted, therefore the analysis of their strengths and
limitations is also required to provide a balanced choice for the theories which will
be used to formulate the hypotheses of this study.
The reason why wage comparison theories like the Equity Theory and the
Discrepancy-Equity Theory have been some of the most popular theories of
motivation so far, is that they represent rationality in economics and may allow a
good understanding of employee perception and their motivation in the work
context. In addition, a general strength of these theories is that they incorporate
both objective and subjective elements, and internal and external influences.
However, these Theories have limitations, especially in terms of important issues like
unconscious mechanisms, lack of assessing employees’ behavior over time and an
over-rationality resulting in an over-simplification of motivation in an unstable and
complex environment.
Firstly, Pinder, (1998) supported that work motivation is a set of internal and
external forces that initiate work-related behavior and determine its form, direction,

intensity and duration. Therefore, Ambrose et al, (1999) stated that this definition
recognizes the influence of both environmental forces and forces inherent in the
person regarding work-related behavior. Wage Comparison theories could represent
some limitations in complicated environments such as in the current recession which
includes unknown elements and uncertainties about the future. These theories
seems to correspond better when there is clear knowledge about the effort,
performance and reward linkages, which does not occur during a recession when
employees face an uncertain environment and future. Thus, Wage Comparison
theories may not be applicable for assessing employees’ job satisfaction in a
recessionary period..
In addition, there could be some limitations with over-rationalization of Wage
Comparison Theories. Previous research has indicated that employees act less than
logically. In fact, irrational behavior is pervasive. As Albanese, (1987, p.14) concluded
"the economic assumption of rationality is violated in the behavior of every person".
This statement is meaningful especially in times of recession, due to the anxieties
and irrational thought process it may be produced. Another limitation of these
theories could be that they are episodic and as a result, there is a difficulty in
assessing the employees’ behavior over time. In a recessionary period with
environmental uncertainty, it seems important for employers to use tools allowing
them to assess the situation over time, and not episodically, in order to develop an
effective strategy during and after the recession.
Finally, Wage Comparison Theories are mainly focused on individual preferences.
Konrad (2000) made an interesting attempt to redefine these theories from the
point of view of social constructionism. According to Konrad, (2000), this shift seems
necessary for a meaningful analysis of the changes in work motivation during times
of transition and recession is a transitional period. Transitional macro-processes on
the one hand determine organizations strategy and climate, which in turn influence
employees’ work behavior through perceived opportunities and restrictions. On the

other hand, employees’ behaviors in turn also influence this organizational context,
which has some impact on the dynamics of transitional changes. Thus, the
Discrepancy, Equity, Discrepancy-Equity and Social Comparison Theories are excluded
from the formulation of this study’s hypotheses, due to the mentioned limitations
that occur in an unstable and complex environment, like economic crisis.
As it was mentioned before, that economic crisis triggered the rethinking of the
system in the overall. Therefore, this study is focused on theories and studies that
include environmental influences at the formulation of employees’ job satisfaction.
Maslow’s theory basic idea highlights the fact that our needs are constantly changing.
While modern research shows some shortcomings with this theory, Maslow’s
Hierarchy of Needs Theory remains an important tool for managers to understand
and apply as it highlights the relation between job satisfaction or dissatisfaction and
needs. Maslow’s Hierarchy of Needs most significant strength is that it represents
rationality in economics and allows a good understanding of employee perception
and motivation in the work context even during the economic recession. No one
reward factor remains the ‘most important’ if the environment around that
employee is constantly changing. The economic crisis and the increased stress on
employees has caused them to focus more on the extrinsic factors than intrinsic
reward factors. Thus, according to Maslow's theory and as a result of the current
economic situation and the high levels of unemployment, employees’ motivation
returns to the basic levels of motivational theories especially to those related to
physiological and job security needs. Every employee want a good salary and a
secure work environment in order to meet his or his family needs. Security or safety
is one of the most basic needs. Therefore, in the current economic situation, an
employee’s beginning emphasis on what Maslow named lower order needs of
physiology and security makes sense. Employees whose lowest level needs have not
been satisfied will make job choices based on compensation, safety and stability
concerns. Similarly, employees will revert to satisfy their lowest level needs when
these needs are no longer met or threatened, such as during an economic recession.

The crisis' appearance has brought significant changes both in organizations and in
the way of thinking and perception of employees. Theories and studies that explored
job satisfaction during times of economic growth have weakened in a recessionary
period. For instance, nowadays employees may not pay attention at fairness
resulting from relative wages such as past wages and co-employees’ wages, but
focus on job security needs instead. Thus, studies highlighting the environmental
influence on organizations and employees and studies that underline the focus on
job security needs like Maslow's Hierarchy of Needs will be used to formulate the
hypotheses of this study. Finally, the following table (Table 1) highlights the most
important conclusions of the prior literature.
Table 1- List of the most important literature
Authors ( year of
publication)
Journal Main conclusions
Marques J. & Luna
N., (2011).
Performance
Improvement
Journal
In today’s work situation, most employees consider security and
interest levels of their jobs to be more important for their
satisfaction than independence at work, opportunities, or large
income.
Loewenstein and
Sicherman, (1991)
Journal of Labor
Economics
Employees prefer an increased wage profile and identify wage cuts
as a proof that their employers depreciate their effort.
Campbell and
Kamlani (1997)
The Quarterly
Journal of
Economics
Employers avoid wage reductions as a result of fearing that best
workers would quit the firm, something that would result in
decreased productivity
Bergmann,
Scarpello & Hills,
(1998)
Dryden Press If a firm’s compensation system is particularly designed with an
emphasis on market data, then employees will use outside referents
to evaluate pay satisfaction”
Clark and Oswald
(1996)
Journal of Public
Economics
Relative pay, instead of actual pay, determines employees'
satisfaction. Thus, wage decline compared with a reference group,
instead of absolute wage decline, that negatively influences
employees’ satisfaction.
Alexander, S. & M.
Ruderman. (1987)
Social Justice
Research
Procedural justice had an important influence on employee attitudes
toward their reward.
If procedures for determining allocations of rewards are believed to
be fair, then the resulting distributions of rewards will tend to be
seen as fair, even among those who experience negative outcomes
Akerlof, (1982) The Quarterly
Journal of
Economics
At least, wages are partly determined by, and in turn also influence,
the norms of workers’ effort. Thus, workers’ effort is determined, at
least in part, by these norms

Chapter 3: Research Hypotheses
In this chapter, after having discussed key theories on how employees find
contentment and fulfillment in their workplace, the tested hypotheses are
developed.
Firstly, it is of great interest to examine in a recessionary period, whether or not
employees’ job satisfaction can be perserved after the implementation of wage cuts
necessary for the survival of the organization. As Kube, Maréchal and Puppe, (2011)
stated: “Future studies may also explore the determinants of the emotional state.
Wage cuts may be perceived differently during a recession if workers understand that
the wage cuts are necessary for the company to stay afloat (or to avoid layoffs).”
Economic crisis appearance has brought significant changes both in organizations
and in the way of thinking and perception of employees. Every employee wants a
good salary and a secure work environment in order to meet his or his family needs.
Thus, studies highlighting the environmental influence on organizations and
employees, and studies that underline the focus on job security needs like Maslow's
Hierarchy of Needs will be taken into consideration to formulate the hypotheses of
this study.
For instance, Marques & Luna, (2011) supported in accordance with Maslow’s
Hierarchy of Needs that job security is the main contemporary concern. Further,
Kropisvek, Jelacic & Groselj, (2011) supported that organizations focus on meeting
the need of job security which is one of the most important motivation factors in a
recessionary period. In addition, Akerlof, (1982) explained that high unemployment
triggers effort since workers are satisfied to be employed. Thus, it is expected that
during recession, necessary wage cuts for the organization’s survival do not affect
employees’ job satisfaction, as a result of the employees’ focus on meeting the need
of job security. On the other hand, in a profitable organization, an implementation of
wage cuts can be perceived as avoidable for the organization’s survival. As Bewley's
(1999) findings indicated, wage cuts under profitable conditions will result in

subverting employees' morale because employees are likely to perceive a wage cut
as a betrayal. Further, Loewenstein and Sicherman, (1991) observed that employees
identify wage cuts as a proof that their employers depreciate their effort.
In this study, the independent variable is wage cuts and the dependent variable is
employees’ job satisfaction. Furthermore, an introduction of two control variables
for the organization’s survival wage cuts is attempted, in order to observe differences
in employees’ job satisfaction. The first control variable of this study is the necessity
of wage cuts for the organization’s survival and the second control variable is the
avoidability of wage cuts for the organization’s survival. Therefore, the sample of this
study is divided into two equal groups of employees. The first control variable
(necessary wage cuts) is applied at the first group of employees and the second
control variable is applied at the second group of employees.
The first null hypothesis of this study assumes that there is not any difference in
employees’ job satisfaction between these two groups. This assumption is formally
stated in the following hypothesis:
H1o: There is not any difference in employees’ job satisfaction between the group of
employees who experienced necessary wage cuts and the group of employees who
experienced avoidable wage cuts.
Furthermore, the first alternative hypothesis of this study assumes that the necessity
of wage cuts may determine employees’ perception and thus, their job satisfaction.
This assumption is formally stated in the following hypothesis:
H1: There is a difference in employees’ job satisfaction between the group of
employees who experienced necessary wage cuts and the group of employees who
experienced avoidable wage cuts.
Thus, the Libby boxes for the first hypothesis are designed and shown in Figure 4.

Fig.4. Conceptual framework for the first research hypothesis
In addition, a focus on the research of Akerlof, (1982), Marques & Luna, (2011),
Kropisvek, Jelacic & Groselj, (2011) and the rationality of Maslow’s Hierarchy of
Needs lead to the generation of the assumption that due to economic crisis, job
security is employees’ main contemporary concern.
Therefore, the second null hypothesis of this study assumes that there is not any
main contemporary concern for employees.
H2o: There is not any main contemporary concern for employees.
Thus, the second alternative hypothesis of this study assumes that employees mainly
focus on meeting the need of job security.
Avoidability of wage cuts
for the organization’s
survival
Difference between the two
groups of employees in
terms of job satisfaction
Implementation of wage
cuts
Operational measures
10% reduction in wages
Overall job satisfaction
Employees’ perception
Necessity of wage cuts for
the organization’s survival
Mediating Variable
Dependent Variable
Control Variable
Independent Variable
Mediating VariableControl Variable

H2: Job security is the employees’ main contemporary concern.
Thus, the Libby boxes for the second hypothesis are designed and shown in Figure 5.
Fig.5. Conceptual framework for the second research hypothesis
Economic Crisis
Wage cuts
Redundancies
High Unemployment Levels
Independent Variable
Job Security becomes the
most important concern
Mediating Variable
Need of Employment
Need of Safety
Need of Stability
Dependent Variable

Chapter 4: Research Methodology
This is the method chapter which includes information on the research method of
this study. This is a research study utilizing cross-sectional survey methodology and
including several survey instruments. In total, 25 questions were answered to
complete this survey. A five-point Likert scale with 22 questions and 3 multiple
choice questions were created for this survey. Finally, the three multiple choice
questions were asked to collect demographic data from the respondents, questions
no. 4-11 and no. 19-25 were asked to answer the first hypothesis and questions
no.12-18 were asked to answer the second hypothesis of this study.
4.1 Design
The used independent variables in this research are wage cuts and the dependent
variable is employees’ job satisfaction. In addition, the study’s control variables are
the necessity and avoidability of wage cuts for the organization’s survival.
The sample of this research was equally divided in two groups, Group 1 and Group 2.
The participants of Group 1 were influenced by the first control variable which is the
necessity of wage cuts for the survival of the organization, while the participants of
Group 2 were influenced by the second control variable, which is the avoidability of
wage cuts for the survival of the organization. Furthermore, both the participants of
Group 1 and Group 2 were asked the same questions.
The participants of Group 1 who were influenced by the first control variable,read
before they answer to the questions the following:
“Imagine you are working in a private company that operates in a struggling
economy in times of crisis. The board members formally announce to the employees
the following: The board members considering the high unemployment rate in our
country and the fact that most employees need this wage to support their families,
decided instead of proceeding to dismissals, to proceed to wage cuts in order to avoid

the oncoming bankruptcy. Thus, the wages will be reduced by ten percent (10%) in
the coming days. If these wage cuts will be beneficial for the organization survival,
board members guarantee that there will be not any dismissals for the following
years. Please answer the following questions, considering you as an employee of this
company after the implementation of the mentioned wage cuts.”
The participants of Group 2 were influenced by the second control variable, read
before they answer to the questions the following:
Imagine you work in a profitable private company that operates in a struggling
economy in times of crisis. The board members formally announce to the employees
the following: The board members decided to proceed to wage cuts in order to
improve the company's profitability. Thus, the wages will be reduced by ten percent
(10%) in the coming days. Please answer the following questions, considering you as
an employee of this company, responding to this questionnaire after the
implementation of the mentioned wage cuts.
4.2 Sampling
This research was based on random sampling technique. Potential respondents were
recruited by the researcher via e-mails and social media for the participation of this
survey research. Additionally, the survey invitation included an explanation of the
research purpose, asking for agreement to participate in this survey and to complete
this survey between 15 July, 2015 and 30 July, 2015.
The reason why this research instrument was chosen by the researcher is now
discussed. Survey is the most popular instrument to measure people’s opinions and
attitudes. For instance, Isaac and Michael (1995, p.136) stated that surveys are the
most widely-used technique in behavioural sciences for the collection of data.
Furthermore, [Fink, (1995a), Isaac & Michael (1995)] supported that surveys

represent ideal instruments for systematically collecting and objectively quantifying
data that typify the knowledge, attitudes and behaviours.
Although, there are some limitations using emails and social media to distribute this
survey, like bias in terms of computer access and know-how, it also offers a number
of significant advantages. Firstly, the researcher is able to efficiently obtain a large
number of responses via Internet at a low cost and at short period of time. Secondly,
the use of Internet allows participants to answer the survey in complete anonymity
and at their own spare time. Thirdly, it is possible to obtain a geographically
heterogeneous sample, something impractical when using traditional research
instruments.
Furthermore, the appropriate number of survey participants was approximated in
order to provide meaningful conclusions from the data. A power analysis for an
independent measures t-test was conducted to estimate the number of participants
of this research. Table 1 (see figures 6,7,8) shows the number of required
participants to obtain the specified power level of 0.80 - which is considered as a
generally acceptable standard level - and an alpha level of 0.05 - which is also
considered as a generally acceptable standard level - if the sizes of the effects are
small, medium, or large. A common measure of effect size is Cohen’s d. Cohen’s d
can be used when comparing two groups’ means and Cohen, (1988) suggested
that d=0.2 be considered a 'small' effect size, 0.5 represents a 'medium' effect size
and 0.8 represents a 'large' effect size.
Table 2 Power Analysis for a t test
Effect Size N per Group Total N
Small 394 788
Medium 64 128
Large 26 52
Note: Power level 0.8 and level of significance (alpha) 0.05

4.3 Instrumentation
The survey instrument has been designed using Likert categorical scale and multiple
choice questions to assess respondents’ attitude towards the implementation of
wage cuts. A Likert categorical scale is a useful and popular way to measure the
intensity of peoples’ feelings, attitudes and opinions. The Likert scale in this study is
unipolar and symmetrical on both sides of a neutral choice resulting in a less biased
instrument. Further, as Preston & Colman, (1999) stated: “On several indices of
reliability, validity, and discriminating power, the two-point, three-point, and
four-point scales performed relatively poorly, and indices were significantly higher
for scales with more response categories, up to about 7.” Furthermore, people may
not be able to express their point of view and may start picking answers randomly on
a more than seven-point Likert scale. Therefore, two three, four and more than
seven point Likert scales are excluded from this research. Thus, a five-point, unipolar
and symmetrical on both sides of a neutral choice Likert scale is chosen for this
research resulting in a less biased instrument.
In addition to the length of the Likert scale, to guarantee the quality of this survey,
the questions satisfy the following requirements, indicated by Maas, (2011):
 Understandable / feasible
 Unambiguous: questions asks for one thing
 The questions are asked in a neutral way
 All answers are possible
 The questions produce some variation
 Foreknowledge is not required
 There are not right or wrong answers
Furthermore, in order to assure high internal validity of this study, a cause-effect
relationship needs to be established. Firstly, in the first hypothesis, the cause (wage
cuts) happens before the effect (job satisfaction). Further, in the second hypothesis,

the cause (economic crisis) also happen before the effect (job security becomes the
main concern). Secondly, in all hypotheses, the cause is related to the effect. In more
details, if there are wage cuts, then job satisfaction might deteriorate and if there
are not wage cuts, then job satisfaction might not deteriorate. Further, if economic
crisis exists, then job security might be employees’ main concern and if economic
crisis does not exist, then job security might not be employees’ main concern.
However, there is a limitation on the internal validity of this study, because it is
possible that there are some other variables or factors or “missing variables” that are
causing the effect. For instance, instead of wage cuts, heavy workload or bad
working conditions might be responsible for the effect on job satisfaction.
Another significant issue with the instrumentation of this research is the concept of
external validity which is related to generalizing. Although it is difficult to draw a
representative sample from the population, random respondent selection for the
survey was chosen to attempt to achieve high external validity and reminder emails
were sent to the respondents to keep the dropout rates low. Further, although the
random respondent selection was chosen for this study, in order to meet the need of
proximal similarity framework, respondents need to have some similarities with the
targeted population. For instance, in this study, respondents need to be employed in
a recessionary period with high unemployment rates in order to be able to
generalize this study’s results.
Furthermore, the concept of construct validity is now discussed. Construct validity is
“the degree to which a test measures what it claims, or purports, to be measuring.”
Cronbach & Meehl ,(1955). In this study, theories like Maslow’s Hierarchy of Needs
and studies like Akerlof, (1982) indicated a focus on job security and a correlation
between high unemployment rates and job satisfaction, which was the main ideas of
this research. The results of this study reaffirmed these indications and the
independent samples t-test showed that the effects on job satisfaction were caused
by the treatment applied at the respondents and not by random reasons.

4.4 Procedures
In order to test the research hypotheses, questionnaires were distributed via e-mails
and social media. For the data collection, the survey participants were randomly
selected. The invitation for the survey participation included a hyperlink directed to
the Web site, where participants were asked to type in the relevant survey number
to access the research. The survey invitation included an explanation of the research
purpose, asking for agreement to participate in this survey and to complete this
survey between 15 July, 2015 and 30 July, 2015. Additionally, the introduction of the
survey included the following explanation of the research purpose:
“I am Ioannis Apostolopoulos, a master’s student of Erasmus University of Rotterdam
and I am conducting this research to find how necessary wage cuts for the
organization’s survival affect employees’ job satisfaction and to graduate from the
master’s program of Accounting and Auditing. The aim of this research is to
contribute to the existing literature by providing new ideas in Behavioral Economics.
The survey should only take 5 minutes and your responses are totally anonymous.
There are no wrong or right answers. If you have questions or problems with the
survey you can contact me at john.apostolop87@gmail.com. Finally, all questions are
required to be answered.
Thank you for your contribution!”
This introductory paragraph aimed to assist the participants in completing the survey
by providing information about the purpose of this study, the time needed and that
there are no wrong or right answers. Furthermore, a contact e-mail address was
provided in case of questions or problems. The feedbacks of the surveys were
collected from the period between 15 July, 2015 and 30 July, 2015. A reminder to
answer the survey was sent to the participants on 21 July, 2015.

4.5 Data analysis
Data analysis in quantitative studies is of great importance as the analysis of
responses is critical to draw appropriate conclusions. The analysis part was
performed with the use of Statistical Package for the Social Sciences (SPSS). The
questions, responses and variables was organised in SPSS followed by the analysis of
the results. Certain statistical methods were administered on the data to analyse the
upcoming results. The first hypothesis (H1) that there will be a significant difference
between Group 1 and Group 2 on level of job satisfaction was tested using an
independent measures t-test. Furthermore, the second hypothesis (H2) that job
security is employees’ main contemporary concern was tested using a one-way
between groups ANOVA.
4.6 Limitations
Now, the limitations of the research methodology are discussed. Firstly, due to
limited time and resources, only a minor portion of the employees working in
recessionary times that was accessible and cooperative was surveyed. Therefore, the
sample size may not accurately represent all employees and bias may be introduced.
Furthermore, there is a limitation in detail and depth of the data. Data collected via
this survey may lack in detail and depth on the participants and the researcher is not
able to check the honesty and accuracy of the responses of the survey. Finally,
knowledge from previous research and studies is limited. Thus, there is a small
amount of information available on the subject of this research.
4.7 Summary
The purpose of this chapter was to illustrate the methodology research of this study,
to explain the selection of the sample, to describe the used procedures in the
instrument designing and the data collection, and to illustrate the statistical
procedures used for the data analysis.

Chapter 5: Results and discussion
In this chapter, the results of the analysis will now be discussed. In paragraph 5.1, the
demographic data will be interpreted. Further, in paragraph 5.2, the results of the
first hypothesis will be interpreted. In more details, the differences in job satisfaction
between the two groups of employees, resulting from the introduction of the two
control variables (necessity and avoidability of wage cuts) will be discussed. Finally, in
paragraph 5.3, the results of the second hypothesis which assumes that job security
is the main contemporary employees’ concern will be also discussed.
5.1 Interpretation of demographic data
In this paragraph, the demographic data will be interpreted. The sample size of this
research is consisted of N=150 respondents. In more details, 58.7% of the
respondents are males and 41.3% are females. Also, 6% of the respondents are
between 18 and 24 years old, 54% are between 25 and 34 years old, 24.7% are
between 35 and 44 years old, 12% are between 45 and 54 years old and 3.3% of the
respondents are above 55 years old. Furthermore, 4.7% of the respondents have
completed High School/GED as their highest level of education, 16.7% have
completed Some College, 33.3% have completed a Bachelor’s Degree, 40.7% have
completed a Master’s Degree and 4.7% of the respondents have completed
Advanced Graduate work or Ph.D. as their highest level of education. Finally, these
demographic information can be found in Tables 3, 4 and 5.
5.2 Discussion of the first hypothesis
Firstly, the survey of this study was developed to test the research hypotheses. The
first hypothesis of this study “There is a difference in employees’ job satisfaction
between the group of employees who experienced necessary wage cuts and the
group of employees who experienced avoidable wage cuts” will now be discussed.
Survey questions no. 4-11 and no. 19-25 were asked to test the first hypothesis. Thus,
there are 15 variables that each represent one subject and a combination of these

subjects into one new variable is attempted in order to be able to build the overall
job satisfaction model and measure it. Therefore, the Principal Component analysis is
used, which is a linear transformation of the variables into a lower dimensional space
that retains the maximum information about the variables.
5.2.1 Principal Component Analysis for the first hypothesis
Survey items no. 4-11 and no. 19-25 were analyzed with Principal Component
analysis. Firstly, in order to determine if Principal Component analysis is appropriate
for this data, the Kaiser-Meyer-Olkin Measure of Sampling Adequacy Test and
Bartlett’s Test of Sphericity (KMO and Bartlett’s Test) will be used.
Table 6
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0,908
Bartlett's Test of Sphericity Approx. Chi-Square 1260,387
df 105,000
Sig. 0,000
As it can be seen at the table 6, the KMO value is greater than 0.6 and specifically is
0.908, and Barlett’s test value is significant with significance value being less than
0.05. Thus, it can be concluded that this data is appropriate for Principal Component
analysis.
Further, it is needed to determine how many components need to be extracted.
Firstly, using the Kaiser’s criterion, only the components with eigenvalue greater than
1 will be taken into consideration. Therefore, the Total Variance Explained table
(Table 7) and the Scree Plot (Figure 9) will be used for this reason.

Table 7 - Total Variance Explained
Component Initial Eigenvalues Extraction Sums of
Squared Loadings
Rotation Sums of
Squared Loadingsa
Total % of Variance Cumulative % Total % of Variance Cumulative % Total
1 7,105 47,367 47,367 7,105 47,367 47,367 6,426
2 1,485 9,901 57,267 1,485 9,901 57,267 4,184
3 1,119 7,463 64,730 1,119 7,463 64,730 1,183
4 0,772 5,144 69,874
5 0,757 5,048 74,922
6 0,638 4,253 79,175
7 0,603 4,023 83,198
8 0,548 3,651 86,848
9 0,401 2,671 89,519
10 0,353 2,351 91,870
11 0,342 2,279 94,149
12 0,273 1,818 95,967
13 0,248 1,651 97,618
14 0,195 1,298 98,916
15 0,163 1,084 100,000
Figure 9

As it can be seen from the Total Variance Explained (Table 7), components 1, 2 and 3
have eigenvalues greater than 1, thus it can be supposed that these three
components will be extracted. However, an examination of the column of the
variance explained by each factor indicates that the first component explains the
47,367% of the total variance, while the second component explains only the 9,901%
and the third component only the 7,463% of the total variance. In addition, it can be
observed at the scree plot that after the first component there is a change in the line
graph, so the first component explains a lot more variance than the second or the
third one. Thus, it is not appropriate to just count on the Kaiser criterion
(eigenvalues>1) to decide how many components need to be extracted. Therefore,
the final step to decide how many components need to be extracted is to run a
parallel analysis. This step was done with the Monte Carlo PCA for Parallel Analysis
(Figure 10), which generates one hundred sets of random data of the same size with
this research data and calculate the average eigenvalues of these one hundred
replications. Afterwards, the eigenvalues of this research data will be compared with
the corresponding first eigenvalue produced by Monte Carlo PCA for Parallel Analysis
and every eigenvalue which is greater than the first eigenvalue of the Monte Carlo
PCA for Parallel Analysis will be retained. Thus, only the first component will be
extracted.

Figure 10
Following, I will force SPSS to extract only one component solution and I will check
the percentage of variance explained by this one factor solution which is shown at
the Total Variance Explained table (Table 8).

Table 8 - Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared
Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 7,105 47,367 47,367 7,105 47,367 47,367
2 1,485 9,901 57,267
3 1,119 7,463 64,730
4 0,772 5,144 69,874
5 0,757 5,048 74,922
6 0,638 4,253 79,175
7 0,603 4,023 83,198
8 0,548 3,651 86,848
9 0,401 2,671 89,519
10 0,353 2,351 91,870
11 0,342 2,279 94,149
12 0,273 1,818 95,967
13 0,248 1,651 97,618
14 0,195 1,298 98,916
15 0,163 1,084 100,000
Extraction Method: Principal Component Analysis.
As it can be seen, the first component explains only the 47,367% of the total variance.
In order to improve the efficiency of the analysis, I will try to remove the items that
do not fit well with the other items in the first component. Thus, I will check the
Communalities table (Table 9), which gives information about how much of the
variance is explained by each item.

Table 9 - Communalities
Column
2 Column3
Initial Extraction
I feel like I am a part of the company I work for 1,00 0,499
I am motivated to see the company to succeed 1,00 0,546
I will look for another job outside the company 1,00 0,011
Company leadership has made changes which are positive for me 1,00 0,499
I am personally committed to the changes being implemented in
the company 1,00 0,374
I would recommend the company as a good. place to work 1,00 0,553
I have a clear view about what is going on with the company 1,00 0,506
I feel appreciated by the company when I think about what they pay
me 1,00 0,450
Please indicate your level of satisfaction in each of the following,
using a check mark from "1" to "5". [Salary] 1,00 0,627
using a check mark from "1" to "5". [Benefits] 1,00 0,275
using a check mark from "1" to "5". [Workload] 1,00 0,153
using a check mark from "1" to "5". [Job security] 1,00 0,610
using a check mark from "1" to "5". [Connection between pay and
performance] 1,00 0,623
using a check mark from "1" to "5". [Overall, with the company.] 1,00 0,751
using a check mark from "1" to "5". [Understanding of the
company’s goals and strategy.] 1,00 0,628
Low values (less than 0.3) indicate that this item does not fit well with the other
items in this component. In this case, as it can be seen in the Communalities table,
item no.3 (I will look for another job outside the company) has a value of 0.011, item
no.10 (Please indicate your level of satisfaction in each of the following, using a check
mark from "1" to "5". [Benefits]) has a value of 0.275 and item no.11 (Please indicate
your level of satisfaction in each of the following, using a check mark from "1" to "5".
[Workload]) has a value of 0.153. Thus, these items were removed from the analysis
in order to increase the total variance explained by the first component and to

improve the efficiency of the analysis. After the removal of these four items there is a
new table of Total Variance Explained (Table 10), which is shown below.
Table 10 – Total Variance Explained
Component Initial Eigenvalues
Extraction Sums of Squared
Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 6,729 56,073 56,073 6,729 56,073 56,073
2 1,13 9,417 65,490
3 0,769 6,411 71,901
4 0,642 5,346 77,247
5 0,569 4,739 81,987
6 0,445 3,711 85,697
7 0,423 3,526 89,223
8 0,347 2,891 92,114
9 0,292 2,437 94,551
10 0,251 2,094 96,645
11 0,223 1,857 98,502
12 0,18 1,498 100,000
As it can be seen at this new table the first component explains the majority of the
total variance, which is 56,073%. Thereafter, it follows the Component Matrix table
(Table 11), which indicates the loadings of each item in the first component.

Table 11 - Component Matrixa
Column2
1,000
Please indicate your level of satisfaction in each of the following, using a check
mark from "1" to "5". [Overall, with the company.] 0,856
mark from "1" to "5". [Understanding of the company’s goals and strategy.] 0,788
mark from "1" to "5". [Connection between pay and performance] 0,785
mark from "1" to "5". [Job security] 0,779
mark from "1" to "5". [Salary] 0,777
I am motivated to see the company to succeed 0,764
I would recommend the company as a good. place to work 0,737
I feel like I am a part of the company I work for 0,729
Company leadership has made changes which are positive for me 0,724
I have a clear view about what is going on with the company 0,724
I feel appreciated by the company when I think about what they pay me 0,680
I am personally committed to the changes being implemented in the company 0,615
a. 1 components extracted.
This component is the outcome variable of this research and it is named as “Overall
Job Satisfaction (OJS) “. OJS is measured by the item weights of this component,
which are the loadings of the items that can be found in the Component Matrix table
(Table 10). As a result, the model of the OJS is the following:
OJSi = (0.856*OJScompxi) + (0.788*OJSUndGSxi) + (0.785*OJSPayPerxi) +
(0.779*OJSJSec) + (0.777*OJSSalxi) + (0.764*MtvCompScdxi) + (0.737*CompGPWxi) +
(0.729*PartCompxi) + (0.724*CompLPosChxi) + (0.724*CVCompxi) + (0.68*ApPayxi) +
(0.615*ComChCompxi)
Where: i = respondent ID, xi = respondent answer and:
OJSi = Overall Job Satisfaction per respondent
OJScompxi = Level of satisfaction: Overall, with the company per respondent
OJSUndGSxi = Level of satisfaction: Understanding of the company’s goals and

strategy per respondent
OJSPayPerxi = Level of satisfaction: Connection between pay and performance per
respondent
OJSJSecxi = Level of satisfaction: Job Security per respondent
OJSSalxi = Level of satisfaction: Salary per respondent
MtvCompScdxi = I am motivated to see the company to succeed per respondent
CompGPWxi = I would recommend the company as a good place to work per
respondent
PartCompxi = I feel like I am a part of the company I work for per respondent
CompLPosChxi = Company leadership has made changes which are positive for me
per respondent
CVCompxi = I have a clear view about what is going on with the company per
respondent
ApPayxi = I feel appreciated by the company when I think about what they pay me per
respondent
ComChCompxi = personally committed to the changes being implemented in the
company per respondent
Finally, the Overall Job Satisfaction (OJS) scores for each respondent can be found on
Table 12.
5.2.2 Independent Samples T-Test for the first hypothesis
After the formulation of the Overall Job Satisfaction Model, an independent samples
t-test was performed to observe any differences in OJS scores between the two
groups and to find out if these two group scores are significant statistically different
or if they are different by chance.
As can be seen in Table 12, the first group of employees (necessary wage cuts applied)
with N=75 was associated with an Overall Job Satisfaction score M=32.31 (SD=4.44).
By comparison, the first group of employees (avoidable wage cuts applied) with N=75
was associated with a numerically larger Overall Job Satisfaction score M=25.19

(SD=7.6). To test the first hypothesis of this study that there is a difference in
employees’ job satisfaction between the group of employees who experienced
necessary wage cuts and the group of employees who experienced avoidable wage
cuts, an independent samples t-test was performed. As can be seen in Tables 13 and
14, both employees’ group distributions were sufficiently normal for the purpose of
conducting a t-test (i.e., skew<│2.0│ and kurtosis │9.0│) as indicated by Schmider,
Ziegler, Danay, Beyer, & Buhner, 2010). Further, the assumption of homogeneity of
variances was tested and not satisfied via Levene’s F test F(148)=42.84, p=0.000 (see
Table 15). Thus, values of equal variances not assumed were taken into consideration
for this independent samples t-test. As it can be seen in the Table 16, at the 95%
confidence level, the critical value for the 120 degrees of freedom is 2.860. The
t-value is 7.004, which is much bigger than the critical value of 2.860. Thus the null
hypothesis was rejected and the independent samples t-test was associated with a
statistically significant effect, t(119.231)=7.004, p=0.000 (see Table 15). Thus, the
group of employees who experienced necessary wage cuts was associated with a
statistically significant larger mean Overall Job Satisfaction score than the group of
employees who experienced avoidable wage cuts. Further, the Cohen’s d was
estimated by the following formula: Cohen’s d =
𝑋1̅̅̅̅−𝑋2̅̅̅̅
(𝑆𝐷1+𝑆𝐷2)/2
Cohen’s d = (32.31-25.19)/ [(4.44+7.6)/2]= 1.18. Thus, Cohen’s d was estimated 1.18
which is a large effect based on Cohen’s d (1992) guidelines.
5.3 Discussion of the second hypothesis
The second hypothesis of this study “Job security is the employees’ main
contemporary concern.” will now be discussed. Survey questions no. 12-18 were
asked to test the second hypothesis.
5.3.1 One-way between groups ANOVA for the second hypothesis
A one-way between groups ANOVA was performed to compare the seven groups of
Job Characteristics in terms of importance for employees. Job Characteristics were

divided into seven groups (Group 1: Job Security; Group 2: Salary; Group 3: Benefits;
Group 4: Working Conditions; Group 5: Communication’s Quality; Group 6:
Company’s Financial Stability; Group 7: Company’s Values). The descriptive statistics
associated with terms of importance for employees among the seven categories of
Job Characteristics are reported in Table 17. It can be seen that Job Security was
associated with the numerically highest mean, among the other Job Characteristics
(M=4.45). In order to test the second hypothesis of this study that Job Security is the
main contemporary employees’ concern, a one-way between groups ANOVA was
performed. Prior to conducting the ANOVA, the assumption of normality was
evaluated and determined as the seven groups’ distributions were associated with
skew and kurtosis less than │2.0│ and │9.0│, respectively as indicated by Schmider,
Ziegler, Danay, Beyer, & Buhner, (2010) (see Tables 18,19,20,21,22,23 and 24).
Further, the assumption of homogeneity of variances was tested and not satisfied via
Levene’s F test F(6,1043)=9.035, p=0.000 (see Table 25)
The between groups ANOVA yielded a statistically significant effect F(6,1043)=104.97,
p=0.000, η2=0.377 (see Table 26). As it can be seen at the Table 27, at the 95%
confidence level, the critical value for the (6, 1043) degrees of freedom is 2.10. The
f-value is 104.97, which is much bigger than the critical value and thus, the null
hypothesis that states that there is not any main contemporary concern for
employees was rejected and 37.7% of the variance in terms of importance for
employees was accounted for by Job Characteristics groups. To evaluate the nature
of the differences between the means of the groups of Job Characteristics further,
the statistically significant ANOVA was followed-up with seven Tukey HSD post-hoc
tests. As can be seen in Table 28, the mean differences between Job Security (which
was associated numerically with the highest mean) and all the other Job
Characteristics were statistically significant different, considering the significance
value in all comparisons which was p=0.000. Furthermore, as can be seen in Table 26,
although there was a low-medium effect size (η2=0.377) based on Cohen’s d (1992)
guidelines, the observed power of Job Characteristics groups was 1.000 which

indicates that the analysis was powered and reasonable. Additionally, as it can be
seen in Table 29, at the 95% Confidence Interval, there was no overlap between the
upper bounds of any Job Characteristic with the lower bound of Job Security, which
indicated a more clear separation in scores in terms of importance for these groups
of Job Characteristics. Therefore, this analysis showed that instead of statistically
significant differences among the groups of Job Characteristics in terms of
importance for the employees, there was also a good clinical significance of these
differences. Finally, it can be concluded from the analysis, that there were statistically
significant differences among the group of Job Characteristics and that Job Security
was associated with the statistically highest mean in terms of importance for the
employees. Thus, the second hypothesis of this study was accepted.

Chapter 6: Conclusion
Job satisfaction is an issue of great interest to employers since it affects employees’
and hence organizations’ performance. Organization’s productivity and profitability
are likely to be higher when employees are highly satisfied by their jobs. Further, job
turnover is also likely to be higher in organizations with employees’ low level of job
satisfaction.
Through my master thesis, I attempted to answer to the research question: “Can
employees’ job satisfaction be preserved after the implementation of necessary for
the survival of the organization wage cuts?”. Το answer this question I attempted to
observe if there are any differences in employees’ job satisfaction between a group
of employees who experienced necessary wage cuts for the organization’s survival
and a group of employees who experienced avoidable wage cuts for the
organization’s survival. Further, I strived to explore if job security is employees’ main
concern in times of crisis.
The answer of this study’s research question is that employees’ job satisfaction can
be preserved after the implementation of necessary for the survival of the
organization wage cuts. In more details, the main findings of this research according
to the descriptive statistics of the analysis are discussed.
Firstly, the findings of this research indicate that there is a statistically significant
difference in employees’ job satisfaction between the group of employees who
experienced necessary wage cuts for the organization’s survival and the group of
employees who experienced avoidable wage cuts for the organization’s survival and
thus, the first hypothesis was satisfied. If employees perceive wage cuts as necessary
for the organization’s survival, then overall job satisfaction scores are higher than the
employees who perceive wage cuts as avoidable for the organizations’ survival. Firstly,
these findings can be correlated with the indication of Akerlof, (1982) that high

unemployment triggers effort since workers are satisfied to be employed in a country
facing economic recession. Secondly, these findings can also be correlated with Clark,
(2010) suggestion that during times of recession intrinsic motivators are still
important but extrinsic motivators become much more important for employees. In
times of recession it is expected that employees become more conservative and risk
averse, acting to protect their jobs. They focused on maintaining or getting their
salary.
Furthermore, the findings also satisfied the second hypothesis of this research that
job security in times of crisis is employees’ main contemporary concern. In more
details, Job Security scored the statistically significant highest mean among the other
Job Characteristics. These findings can be linked with Marques J. & Luna N., (2011)
indication that in today’s work situation, most employees consider security to be
more important for their satisfaction than independence at work, opportunities, or
large income.
Both results of this study makes sense, since in times of crisis, when employees’
lowest level of needs are threatened (need of salary and employment), employees
focus on staying employed and make job decisions based on compensation, safety, or
stability concerns. For instance, in times of crisis with high unemployment rates, if an
employee loses his job, then it is likely difficult to find a new one and thus, is difficult
to satisfy his basic needs of housing, food, safety etc. This findings are in accordance
with the Maslow’s Theory (1943), which supports that in a recessionary period, an
employee’s beginning emphasis on the lower order needs of the physiology and
security makes sense.
6.1 Scientific and managerial Implications
This study has several contributions for both theory and practice. Firstly, the current
literature mainly examines job satisfaction and how it is related to wage cuts in

periods of growth. However, a recessionary period, which is a part of the economic
cycle has an impact on how people think and behave. Therefore, the findings of this
study have several implications for behavior economics as they expand our
knowledge to current literature by highlighting the determinants of job satisfaction in
a recessionary period.
Secondly, the global economic recession has caused a rise in bankruptcy risks with an
increased number of organizations struggling to remain profitable and survive. In
periods of growth, managers have the alternative to raise debt in order to recover
organization’s profitability. However, in a recessionary period, raising debt usually is
not a choice for organizations due to the more restricted rules in the bank loaning
policy. Thus, managers may be forced to implement wage cuts in order to recover
organization’s profitability. However, in this case, managers face the risk of
demotivating their employees. Thus, this study may be relevant to managers as it
indicates how behavioral economics can be used, so wage cuts can be implemented
without demotivating and dissatisfying their employees.
6.2 Limitations and future research
This study has several limitations that uncover areas for future research. Firstly, the
sample size is relatively small (N=150), thus it is possible that the results are not
representative for the entire population. Secondly, the surveys were distributed via
e-mails and social networks, thus it is possible that bias was included in the results,
due to the fact that people who do not use computers were excluded from this
research. Thirdly, the data were collected in a restricted period of two weeks, thus
this time of period is small, including the risk of having biased conclusions.
Furthermore, respondents were introduced to a hypothetical scenario, thus there is
the risk that respondents answered the survey questions without capturing the idea
of this scenario. Finally, there is a limitation in detail and depth of the data. Data
collected via this survey may lack in detail and depth on the participants and the
researcher is not able to check the honesty and accuracy of the responses of the

survey.
There are a number of suggestion for future study. The first suggestion for future
research is using a larger number of respondents as the sample size of this study was
relatively small and thus, this might result in different findings. Secondly, collecting
data in a greater period of time, i.e. a six-month period could capture the opinions of
employees more effectively and thus, the results may be different. Thirdly, the
selection of the instrument to collect the data could be different. For instance,
instead of a hypothetical scenario based survey, a real-time experiment using real
terms of wages and wage cuts can be applied, in order to overcome the limitation of
lack in data detail and depth and thus, could capture employees’ opinions more
effectively.

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