۱ Introduction

When dealing with labour relations in economics, wages and their influence on employee behaviour and well-being are among the most prominent objects of research interest. In this context, the study of job satisfaction has gained increasing interest as it measures the subjective evaluation of many job aspects that cannot be captured otherwise (Clark et al., 1998; Clark, 1999; Freeman, 1978). Employers should be concerned about their employees’ job satisfaction as this can be considered a determinant, for example, of an individual’s job-related well-being, commitment, and labour market mobility or turnover intentions (Freeman, 1978; Johnston and Lee, 2013). Workers who are more satisfied with their jobs presumably change them less often and more often invest in firm-specific human capital (Hamermesh, 2001). On the other hand, firms have considerable discretionary power when setting wages, and thereby have the capacity to potentially affect employees’ job satisfaction. The aim of this paper is thus to analyse whether individuals adjust their job satisfaction to a wage change; i.e., whether wages and especially positive wage changes can buy enhanced and persistent employee job satisfaction. While in traditional economic theory employee utility typically depends on the absolute level of monetary outcomes, more recent evidence, which draws on behavioural theory, suggests that individuals also consider relative comparisons when evaluating their own income. Typically two types of reference points can be distinguished: an internal reference point (intraindividual or status quo comparison) and an external reference point (interindividual or social comparison) (Clark et al., 2008a). In the context of labour relations, internal reference points typically involve situations where individuals assess their current income in terms of former incomes. External reference points, on the other hand, usually relate to situations where individuals compare their outcome to the outcome of similar others, for example, co-workers, which is generally referred to as making “social comparisons”. In this paper, we combine these concepts and focus on the effects of (relative) wage changes on job satisfaction over time. More precisely, we aim to disentangle the effects of intra- and interindividual wage changes on job satisfaction. While there is an extensive literature on the link between life satisfaction and income (e.g., Di Tella et al., 2010; Ferrer-i-Carbonell, 2005; Frijters et al., 2004) and also a strand of experimental literature addressing the effects of wage changes on work morale and effort (see, e.g., Bracha et al., 2015; Kube et al., 2013; Sliwka and Werner, 2017), the relationship between job satisfaction and wage changes has attracted much less attention. Studies that are closest to ours and explicitly address job satisfaction and income changes were conducted by, for instance, Clark (1999), who examines current income and income changes with data from the British Household Panel Survey (BHPS), and Grund and Sliwka (2007), who theoretically and empirically evaluate the influence of current wages and wage increases on job satisfaction using the same data set as in this analysis, the German Socio-economic Panel (GSOEP). Smith (2015) considers the effects of an individual’s wage and its changes on job satisfaction using data from the BHPS. Finally, Bossler and Broszeit (2017) use data from the Linked Personnel Panel (LPP), in order to analyse how the introduction of the German statutory minimum wage in 2015 affected the job satisfaction of individuals subject to this new legislation. While evidence is mixed on whether individuals’ wage levels affect their job satisfaction, all mentioned studies conclude that job satisfaction is positively affected by wage changes.