Nonlinear evaluation of status and signal effects

Pages112-129
Date07 October 2013
Published date07 October 2013
DOIhttps://doi.org/10.1108/EBHRM-12-2012-0020
AuthorStefan Schneck
Subject MatterHR & organizational behaviour,Global HRM
Nonlinear evaluation of status and
signal effects
Stefan Schneck
Institut fu
¨r Mittelstandsforschung (IfM) Bonn, Bonn, Germany
Abstract
Purpose – The purpose of this paper is to describe whether workers in high positions and workers in
low positions think differently about status and possible future career advancement opportunities.
Design/methodology/approach – The paper uses German panel data to examine the effects of
relative standing on individual satisfaction with the job, the propensity to change jobs, and intentions
to start-up an enterprise in the near future.
Findings – The relationship between relative wage positions and job satisfaction is inversely
U-shaped. This is interpreted as evidence that low status translates into low utility while employees
with high relative standing seem to be more concerned about the lack of future career prospects in paid
employment. Workers who gather utility from status and career advancement opportunities
simultaneously are more satisfied with their jobs. The paper also shows that lower satisfaction with
the job translates into considerations to leave the job.
Practical implications – The described relationships explain individual determinants of voluntary
quits and workforce fluctuations, which are of special interest in debates about possible shortages of
skilled labor or tightening labor markets for skilled workers.
Social implications – Individual comparisons with peers affect individual reasoning.
Originality/value – The paper aims to enhance the discussion about nonlinear effects in status
considerations as well as future career advancement opportunities. The paper shows that workers in
very high and very low positions value these important psychological traits differently.
Keywords Job satisfaction, Relative wage position, Status, Nascent entrepreneurship
Paper type Research paper
1. Introduction
Several papers have shown that relative income comparisons affect individual utility.
The seminal works of Smith (1759/1976) and Marx (1849/2006) suggest that ou r
pleasures are relative in nature. In this spirit, the psychological literatu re examined
individual perceptions of fairness in the context of comparisons with other individuals
(Adams, 1965). The effect of comparisons between other individuals and one’s own
economic considerations also became of interest in the economics literature. Specifically,
one’s own relative standing and income comparisons are addressed in studies of
interdependent preferences and subjective well-being(see, e.g. Hamermesh, 1975; Frank,
1985; Easterlin, 1995; Clark and Oswald, 1996; Clark et al., 2008) as well as in papers on
economic behavior (see, e.g. Card et al., 2012; Pfeifer and Schneck, 2012b).
The literature on relative standing distinguishes between the status effect and the
signal effect. The status effect describes situations in which a low relative wage
position is perceived as unfair and of low utility. Individuals are thus presumed to
conduct downward comparisons and prefer a high relative standing[1]. More recent
literature sources indicate the presence of a signal effect. Clark et al. (2009) suggest in
their seminal work that relative standing also provides workers with info rmation
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2049-3983.htm
Received 18 December 2012
Revised 8 March 2013
26 March 2013
27 March 2013
Accepted 27 March 2013
Evidence-based HRM: a Global
Forum for Empirical Scholarship
Vol. 1 No. 2, 2013
pp. 112-129
rEmeraldGroup PublishingLimited
2049-3983
DOI 10.1108/EBHRM-12-2012-0020
I have benefited from discussions with Rosemarie Kay, Peter Kranzusch, and Arndt Werner.
Thanks to three anonymous referees and participants of the G-Forum 2011 and RENT XXV
conference for valuable comments on an earlier draft of this paper.
112
EBHRM
1,2
about their own future wages and career advancement opportunities. This implies
that individuals do not necessarily conduct downward comparisons, but also conduct
upward comparisons in order to evaluate their future care er prospects. Higher wages
of the comparison group, therefore, might result in an evaluation of higher career
advancement opportunities.
In recent times, a growing strand of labor market literature analyzed the relationship
between satisfaction with the job and job mobility. For Germany, Cornelißen (2009)
showed that job satisfaction is an important determinant of job search, which is a good
predictor of actual job changes[2]. Card et al. (2012) additionally took relative standing
into account and found that individual comparisons affect satisfaction with the job
and the probability of looking for a new job[3]. A central finding was that relative pay
comparisons affect job satisfaction in a nonlinear way. The authors also confirmed that
job search is actually a predictor of job turnover. For Germany, Pfeifer and Schneck
(2012a,b) showed that direct mobility between establishments is affected by relative
wage positions.
So far, the literature on job satisfaction and relative standing rarely refers to
nonlinear effects. Card et al. (2012) show that workers with below-median ear nings
report lower job satisfaction, while those ear ning above-median salaries do not report
higher job satisfaction. For this reason, the authors conclude that the relationship
between satisfaction and relative standing is nonlinear. In addition, looking for a new
job is found to be an inverse measure of satisfaction with the job. Pfeifer and Schneck
(2012a) analyze the nonlinear (quadratic) effect of relative standing in the context of
job mobility. The authors argue that workers in low relative wage positions are less
satisfied because of low status, while those in high relative wage positions are
dissatisfied because of a lack of future career prospects. In their empirical analysis, the
authors are only able to examine individual quit decisions, but are not able to include
job-related utility in their analysis.
Here, we follow the nonlinear approach of Pfeifer and Schneck (2012a) an d
examine job satisfaction as a dependent variable[4]. For this reason, our paper
contributes new nonlinear findings about the relationship between job satisfaction and
relative wage positions, adopting the theoretical as well as the empirical framework
of Pfeifer and Schneck (2012a). As in Card et al. (2012), we examine the propensity
to change jobs in the near future. A major innovation is the analysis of the
propensity to become self-employed within the next two years in combination with
relative standing.
The paper proceeds as follows. In the next section, the theo retical background
is discussed and hypotheses are developed. Section 3 des cribes the data set and the
imposed restrictions. Section 4 presents and interprets the empirical findings, while
Section 5 concludes.
2. Theoretical background and hypotheses
The standard economic literature explains that individual utility is mainly determine d
by absolute wages, with increasing wages adding to individual utility. However, the
present paper refers to relative wage position s that rely on income comparisons
with individually defined peers. Other peoples’ income is a remarkably important
determinant in studies on subjective well-being. If one’s own wage is held constant,
lower wages of peers might increase individual utility because it allows for downward
comparisons, which might be perceived as of high status (status effect). Among a bulk
of studies, Clark et al. (2008) corroborated that higher relative wage positions increase
113
Evaluation
of status and
signal effects

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