Wage increase may not give job satisfaction

Contrary to the popular believe that people tend to be more satisfied after an increase in their wage, a new study suggests that it may be temporary and not have a persistent effect on job satisfaction.

The result indicates that wage increases in small, but regular increments -- rather than less frequent but higher increases that add up to an equivalent amount -- are the most effective way to motivate employees in the long run.

For this study, published in the Journal of Economic Behaviour and Organisation, almost 33,500 observations were analysed; with the majority of individuals indicating a job satisfaction of seven on a zero to 10 scale.

In line with expectations, the study found that job satisfaction was positively influenced by wage increases.

However, the rise in job satisfaction after a wage increase is only temporary, as the effect almost fades out within four years.

According to behavioural-economic theory, this can be explained by the fact that people do not evaluate their income in absolute terms, but rather in relation to their previous income.

Furthermore, people adapt to their new wage level over time, so a higher salary becomes the new reference point for future comparisons.

The same mechanisms appeared to be at work in the opposite direction.

Negative reactions to wage cuts were also temporary, a finding that the researchers again explain with reference point adaptations and social comparisons.

The researchers, including Patric Diriwaechter and Elena Shvartsman from the University of Basel, conclude that wage increases can be a tool to motivate employees, yet only under carefully designed conditions.