The Effect of Pay Cuts on Psychological Well-Being and Job Satisfaction

One of the main economic outcomes of the recent great recession was the decrease of labour earnings in many countries. The relevant literature indicates that earnings and other socioeconomic predictors can influence psychological well-being. The same holds true for job satisfaction. This chapter tests the effect of pay cuts on the psychological well-being and job satisfaction. The data used in this chapter was drawn from the 5th European Survey on Working Conditions which focuses on European countries. The methodological tools for analyzing the data are the ordinary least-squares (OLS) regression, the Probit regression, and the marginal effects method. The results point to a negative statistical significant effect of pay cuts (decrease labour earnings) on psychological well-being. The results also indicate that pay cuts have a negative statistical significant impact on job satisfaction.