Overpayment and earnings satisfaction: an application of an ordered response Tobit Model

In this paper an ordered response Tobit model is specified to determine the effects of absolute wages and relative overpayment on satisfaction with earnings. The joint estimations of wages and satisfaction with earnings allows us to disentangle the effects of relative and absolute wages on satisfaction with earnings. The model is estimated on two different data sets. All estimations show that satisfaction with earnings is determined by relative wages rather than by absolute wage levels. The results may have implications for pay policies of firms