8 Conclusion
Wage increases are one of the most common methods used by firms to stimulate employee motivation. On the superficial level, this seems to be a reasonable practice, since hardly anybody would argue that employees dislike positive wage changes. Yet, the persistence of employee satisfaction remains a far more arguable matter. With this analysis we have contributed to answering the question of whether wage increases really buy enhanced and persistent employee job satisfaction. We thereby also elicited the reference dependence of individuals’ evaluation of job satisfaction. In our analysis, we have estimated a job satisfaction equation and simultaneously included a lead and lag structure of wage changes in our model and accounted for social comparisons using representative individual panel data for Germany from 1990 to 2013. Our findings indicate that individuals anticipate wage changes one year prior to their actual occurrence. Further, our results show that people at least partially or even fully adapt to wage changes within three to four years after a realised wage change. Furthermore, receiving a wage increase above one’s respective peer group enhances individual job satisfaction. On the other hand, social comparisons appear to play a minor role in job satisfaction when simultaneously controlling for intraindividual comparisons. When we disentangled positive and negative wage changes, we found that individuals fully adapt to positive wage changes and that wage decreases are partly absorbed by interindividual comparisons. Finally, adaptation appears to decelerate once we cleared our sample of individuals who have changed their job between the observations, indicating that adaptation to wage changes is partly driven by the associated adaptation to a new job for individuals who assumed new within-firm positions or changed their employer.
