Economics 101

New Study Reveals Possible Wage Envy

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If you only needed $50 a day to live comfortably, would you be happier making $50 each day or $60?

The answer might depend on how much your coworkers are making.

A new study by a group of economists at the University of Zurich and Nottingham found that wage satisfaction is directly related to peer-coworker salaries.

On NPR’s Morning Edition, Shankar Vedantam reported most people are happier making $50 when their peers are making $40, than they are making $60 when their peers are making $70.

In the experiment, economists worked with a company looking for short-term workers.

Pairs of workers received a pay cut when their teams only received a partial pay cut.

The study found that when you suffer a pay cut and your partner doesn’t,

The effect on your morale and productivity is two to three times larger than the effect of suffering an identical pay cut but in a situation where your coworker also suffers a pay cut of the same size.

In other words, your satisfaction with your wage doesn’t have much to do with the amount of money you’re making or your ability to pay your bills and live comfortably.

Host Steve Inskeep suggested this preference is based on whether or not you feel like you are treated fairly.

Does the preference to earn less when your coworkers are earning less than you, instead of earning more when your coworkers are making more than you, really come from a desired sense of fairness? Or is it envy?

Perhaps it’s a bit of both.

In the case of the experiment, if an employee receives a more significant pay cut than his coworkers, with the perception he creates equal value to his coworkers, it’s no surprise the wage cut would have such an impact on his morale.

Wage should be tied to value creation.

Under the same circumstance, but with wage closely connected to value creation—he gets a larger pay cut because he’s creating less value than his colleagues—the worker’s dissatisfaction may be considered more envious than the first scenario.

We all have a drive for equality and fairness, but we cannot desire equality for equality’s sake. This drive is what leads to harmful and enslaving redistribution policies and unemployment.

On the show, Inskeep paraphrases an Alexis De Tocqueville quote from Democracy in America that illustrates this point.

The full quote reads,

There is in fact a manly and legitimate passion for equality that spurs all men to wish to be strong and esteemed. This passion tends to elevate the lesser to the rank of the greater. But one also finds in the human heart a depraved taste for equality, which impels the weak to want to bring the strong down to their level, and which reduces men to preferring equality in servitude to inequality in freedom.

God made us each with equal dignity. Equality under the law and equality of opportunity are ideals that have made America great. But when our drive for equality is rooted in envy, we forget the beauty of our uniqueness.

C.S. Lewis reminds us of the true nature of our equality in his essay “Membership:”

God is no accepter of persons; His love for us is not measured by our social rank or our intellectual talents. […] If there is equality, it is in His love, not in us.

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