Earnings Aspirations and Job Satisfaction: The Affective and Cognitive Impact of Earnings Comparisons

Abstract

Theories of interdependent preferences predicts that the effect of peer earnings on individual well-being is either negative, the “relative deprivation”, or positive the “cognitive effect”. The evidence so far has attributed the dominance of each of the above effects on the country’s economic and political environment. This study claims that relative earnings can affect job satisfaction in two opposite ways, through the affective, “relative deprivation”, and the cognitive channel. The dominance of each effect depends on the individual-specific financial situation rather than the country’s environment. Utilising a longitudinal dataset for British employees, the results of this study show that the cognitive informational effect of “peer earnings” dominates social comparisons for those in financial distress. It further suggests job satisfaction is a relative concept.