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Do Pay Rises Make Us Happier?

Do Pay Rises Make Us Happier?

Wages do make people more satisfied with their jobs, BUT only for a short time. Research by Diriwaechter and Shvartsman at the University of Basel researched job satisfaction and wage changes. They found that after a wage increase, there tends to be an increase in job satisfaction, particularly if the person receives a higher raise than their colleagues. 

However, they also found that employees were satisfied with their job one year before the wage rise, suggesting their satisfaction was improved positively by the expectation of the pay rise.

However, this satisfaction was only temporary and tends to fade within four years.  The behavioural-economic theory suggests that this could be because people do not view their income in absolutes, but rather in comparison to their previous income. Also, people adapt to a new wage over time, so a higher salary becomes important for comparisons.

They also found the same effect in the opposite direction for wage cuts. Negative reactions to wage cuts were also temporary.  Cuts are often associated with problems in the industry or company and also colleagues’ wages are likely to be cut.

The researchers suggest that wage increases can motivate employees under certain conditions. They suggest that small regular wage increases are better than higher increases less frequently.

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