Income Inequality and Subjective Well-Being: Assessing the Relationship

[We’re pleased to welcome author Ivana Katic of the Yale School of Management.  Katic recently published an article in Business & Society entitled, “Income Inequality and Subjective Well-Being: Toward an Understanding of the Relationship and Its Mechanisms,” co-authored by Paul Ingram of Columbia Business School. Below, Katic details the inspiration for the study:]

What inspired you to be interested in this topic? Inequality has always been a major topic in sociology. In the academic community and beyond, this interest in inequality simply exploded in the wake of the financial crisis of 2008, as well as the Occupy protests around the world. Despite the amount of attention that income inequality has been receiving in empirical studies across psychology, sociology, economics as well as political science, my co-author Paul Ingram and I noticed that the literature was still quite mixed in regards to the effects of income inequality. In fact, extant studies had found positive, negative and neutral effects of income inequality on the subjective wellbeing and happiness levels of individuals. This lack of a consensus, we thought, was quite interesting, especially in contrast to the commonly held belief that inequality has exclusively negative consequences for individuals, as well as communities—ranging from lowered trust and health and increased crime levels to, ultimately, lower overall wellbeing. We decided that the time was ripe to pursue a comprehensive study that would allow us to better understand how income inequality affects subjective wellbeing (SWB). Such a study would also allow us to better understand the channels through which income inequality may affect SWB. We set out to answer these important, and particularly timely questions, by constructing a rich cross-country dataset including 65 countries from 1995 to 201B&S_72ppiRGB_powerpoint.jpg1.

Were there findings that were surprising to you?Given the common notion that income inequality is always detrimental to human flourishing, we were initially surprised to see that income inequality had a strong and very robust effect on SWB in our analysis. On the other hand, this was not the first time a study had found a positive effect—so there was clearly precedent for our finding in previous literature on the topic. However, to be quite certain, we threw everything we could at our results in a variety of robustness tests (including different operationalizations of our key independent variable and our dependent variable, as well as a series of different estimation techniques). Our results never budged.

How might one use the study’s main finding of a positive main effect of income inequality on SWB to create policy? While our main effect suggests that decreasing income inequality may not increase SWB, we caution against using our study as justification for lowering taxes and increasing inequality. First, our results do not necessarily indicate that income inequality is never a negative for a variety of other life outcomes. Second, we cannot rule out that income inequality may increase beyond the range studied in our paper, and we similarly cannot guarantee that it would not have negative effects beyond that range. Third, in a separate working paper, we find that any changes in the level of income inequality are uniquely damaging to SWB, suggesting that fluctuating levels of inequality may be particularly psychologically taxing for individuals to adjust to.

However, our study has another way forward for policy. A particularly important aspect of our study is that it sheds light on the mechanisms of income inequality’s relationship with SWB. Specifically, we found that income inequality has more positive effects on individuals who are relatively better off, those that perceive the income generation process to be fair, and surprisingly, those that do not perceive a lot of social mobility in their society. It is with these mechanisms in mind that we suggest constructing policies that focus on increasing perceptions of fairness and reducing social comparisons to the superrich.

In terms of future research, we hope that our study paves the way for other work that might further unravel the complexity of income inequality’s effects. In particular, future scholars should continue to investigate how income inequality may impact individuals differently depending on who they are, and where they live. Finally, the role of organizations in affecting levels of income inequality (and consequently, SWB) is also a very promising area of study. Given the complexity of this social phenomenon, as well as its highly significant implications for policy, future work on all of these topics is direly needed.

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Laissez-Colbert: Using The Colbert Report to Teach Macroeconomics

512px-rally_to_restore_sanity_andor_fear_-_colbertIt is not often that economics and comedy come together, but for professors looking to infuse their macroeconomics courses with comedic appeal, look no further than The Colbert Report. A recent article from The American Economist from author Gregory M. Randolph entitled “Laissez-Colbert: Teaching Introductory Macroeconomics with The Colbert Report” outlines how the Comedy Central show can be useful tool to engage students and teach lessons about macroeconomic principles, including GDP, supply and demand, and unemployment. The abstract for the paper:

The Colbert Report combines comedic entertainment and current events, two pedagogical sources that have the potential to increase student interest in classes and improve student learning. This article offers suggestions on the use of segments from The Colbert Report to teach introductory macroeconomics. Segments Current Issue Coverare included that relate to comparative advantage, supply and demand, externalities, GDP, unemployment, classical versus Keynesian theory and the Great Depression, fiscal policy and economic stimulus packages, monetary policy and the Federal Reserve, money, taxes, and foreign aid. Guidance is provided regarding the use of the clips in an introductory macroeconomics class.

You can read “Laissez-Colbert: Teaching Introductory Macroeconomics with The Colbert Report” from The American Economist free for the next two weeks by clicking here. Want to stay current on all of the latest research published by The American EconomistClick here to sign up for e-alerts!

*Stephen Colbert image attributed to Cliff (CC)

Read the November 2016 Issue of Journal of Management!

3340359442_b93f0f9aa9_o-1The November 2016 issue of Journal of Management is now available online, and can be accessed for the next 30 days! The November issue covers a variety of topics, including articles on organizational transparency, shared leadership-team performance relations, and the effects of autonomy on team performance.

Authors Anthony J. Nyberg, Jenna R. Pieper, and Charlie O. Trevor contributed the article “Pay-for-Performance’s Effect on Future Employee Performance: Integrating Psychological and Economic Principles Toward a Contingency Perspective,” which suggests that bonus pay may have a stronger effect on future performance than merit pay, among other findings about pay-for-performance. The abstract for the paper:

Although pay-for-performance’s potential effect on employee performance is a compelling issue, understanding this dynamic has been constrained by narrow approaches to pay-for-performance conceptualization, measurement, and surrounding conditions. In response, we take a more nuanced perspective by integrating fundamental principles of economics and psychology to identify and incorporate employee characteristics, job characteristics, pay system Current Issue Covercharacteristics, and pay system experience into a contingency model of the pay-for-performance–future performance relationship. We test the role that these four key contextual factors play in pay-for-performance effectiveness using 11,939 employees over a 5-year period. We find that merit and bonus pay, as well as their multiyear trends, are positively associated with future employee performance. Furthermore, our findings indicate that, contrary to what traditional economic perspectives would predict, bonus pay may have a stronger effect on future performance than merit pay. Our results also support a contingency approach to pay-for-performance’s impact on future employee performance, as we find that merit pay and bonus pay can substitute for each other and that the strength of pay-for-performance’s effect is a function of employee tenure, the pay-for-performance trend over time, and job type (presumably due to differences in the measurability of employee performance across jobs).

Another article from the issue, entitled “Social Media for Selection? Validity and Adverse Impact Potential of a Facebook-Based Assessment” from authors Chad H. Van Iddekinge, Stephen E. Lanivich, Philip L. Roth, and Elliott Junco delves into the hazards that arise when recruiters use social media platforms like Facebook to screen job applicants. The abstract for the paper:

Recent reports suggest that an increasing number of organizations are using information from social media platforms such as Facebook.com to screen job applicants. Unfortunately, empirical research concerning the potential implications of this practice is extremely limited. We address the use of social media for selection by examining how recruiter ratings of Facebook profiles fare with respect to two important criteria on which selection procedures are evaluated: criterion-related validity and subgroup differences (which can lead to adverse impact). We captured Facebook profiles of college students who were applying for full-time jobs, and recruiters from various organizations reviewed the profiles and provided evaluations. We then followed up with applicants in their new jobs. Recruiter ratings of applicants’ Facebook information were unrelated to supervisor ratings of job performance (rs = −.13 to –.04), turnover intentions (rs = −.05 to .00), and actual turnover (rs = −.01 to .01). In addition, Facebook ratings did not contribute to the prediction of these criteria beyond more traditional predictors, including cognitive ability, self-efficacy, and personality. Furthermore, there was evidence of subgroup difference in Facebook ratings that tended to favor female and White applicants. The overall results suggest that organizations should be very cautious about using social media information such as Facebook to assess job applicants.

You can read these articles and more from the November 2016 issue of Journal of Management, which is free for the next 30 days, by clicking here to view the issue’s table of contents! Want to stay current on all of the latest research published by Journal of Management? Click here to sign up for e-alerts to receive notifications for new issues and Online First articles!

*City image attributed to Mark Goebel (CC)

All That Glitters is Not Gold: Pay Inequality in Hollywood

19764935991_a885f36e35_zThe gender-wage gap is not a newly discovered phenomenon, but recently, pay inequality has been pushed into the limelight by several outspoken actresses who are dissatisfied with the blatant gender-wage gap in Hollywood. While the gender-wage gap impacts women across many industries, pay inequality in the entertainment industry stands out in that gender and age both play a part in how much actors and actresses earn. In their paper, “Age, Gender, and Compensation: A Study of Hollywood Movie Stars,” published in Journal of Management Inquiryauthors Irene E. De Pater of National University of Singapore, Timothy A. Judge of University of Notre Dame, and Brent A. Scott of Michigan State University compare the average earnings of top actors and actresses to better understand the gender-wage gap in Hollywood.

The abstract:

Research on the gender-wage gap shows equivocal evidence regarding its magnitude, JMI_72ppiRGB_powerpointwhich likely stems from the different wage-related variables researchers include in their calculations. To examine whether pay differentials solely based on gender exist, we focused on the earnings of top performing professionals within a specific occupation to rule out productivity-related explanations for the gender-wage gap. Specifically, we investigated the interaction of gender and age on the earnings of Hollywood top movie stars. The results reveal that the average earnings per film of female movie stars increase until the age of 34 but decrease rapidly thereafter. Male movie stars’ average earnings per film reach the maximum at age 51 and remain stable after that.

You can read “Age, Gender, and Compensation: A Study of Hollywood Movie Stars” from Journal of Management Inquiry by clicking here. The paper was also cited in an article on Time.com, which you can read here.

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*Jennifer Lawrence image credited to Gage Skidmore (CC)

Book Review: The Third Globalization: Can Wealthy Nations Stay Rich in the Twenty-First Century?

51w5r5VDcuL._SX330_BO1,204,203,200_The Third Globalization: Can Wealthy Nations Stay Rich in the Twenty-First Century? Edited by Dan Breznitz, John Zysman . Oxford, UK and New York: Oxford University Press, 2013. 432 pp. ISBN 978-0199917822, $105 (Cloth); ISBN 978-0199917846, $39.95 (Paperback).

Hiram Samel of the University of Oxford recently took the time to review the book in the October Issue of ILR Review.

From the review:

A marked lack of sustainable economic growth has become an unfortunate but predominant characteristic of wealthy nations in the seven years following the ILR_72ppiRGB_powerpointfinancial crisis. Whether policymakers pursue fiscal stimulus or austerity, the outcome has been far from satisfactory. Notwithstanding Carmen Reinhart and Kenneth Rogoff’s argument that financial crises require a longer recovery time, is it possible that policymakers have the mix of policies wrong? The vast majority of wealthy states, after all, liberalized markets in the past two decades with the hope of emulating U.S. innovation and growth only to find instead they needed to reinsert themselves when capital and labor markets stalled. Given this failure, how prepared will the same states be for the next era of global competition, when emerging economies such as China and India that have benefited from rapid technological advances begin to leverage their economic and intellectual scale?

The authors of The Third Globalization address this question with a series of essays framed around a dilemma the editors, Dan Breznitz and John Zysman, term the “double bind.” In psychiatry, individuals face a double bind when they are unable to decide between conflicting statements from highly valued but distinct actors. In adapting the concept to political economy, the editors argue that politicians and policymakers in wealthy nations face similar indecision. On one hand, they need free markets to stimulate innovation and growth while, on the other hand, they need to reassert control of markets to foster social stability. The question is, can they do both at the same time?

You can read the rest of the review from ILR Review for free for the next two weeks by clicking here. Like what you read? Click here to sign up for e-alerts and have all the latest research and reviews like this sent directly to your inbox!

Should Restaurants Offer “Early-Bird” or “Night-Owl” Specials?

vine-glass-1208604-mDiners who avoid the dinner rush at restaurants can’t seem to catch a break. In the 90’s, Jerry Seinfield made fun of senior citizens who took advantage of early-bird specials while Jack in the Box’s current late-night meal promotion, “the munchie box,” lampoons college-aged males. But are early-bird and night-owl specials even effective for increasing a restaurant’s revenue? Gary M. Thompson of Cornell University recently explored this topic in his article “Deciding Whether to Offer ‘Early-Bird’ or ‘Night-Owl’ Specials in Restaurants: A Cross-Functional View” from Journal of Service Research.

The abstract:

In a long history of capacity and demand management research in services, it has often been suggested that pricing discounts and specials can increase demand in off-peak periods. We 02JSR13_Covers.inddexamine this issue in the contexts of restaurants, where the practices of offering discounts to restaurant patrons for dining early or dining late—commonly known as “early-bird” and “night-owl” specials, respectively—exist throughout the world. These specials bridge marketing and operations—marketing from the goal of increasing customer demand in the off-peak periods and operations from the perspective of having to serve those customers. The effectiveness of these specials has yet to be examined. While simulation would be an ideal tool for predicting the specials’ net revenue benefits, it might be impractical for many restaurateurs, so we develop three simple “back-of-the-envelope” type calculations. Restaurateurs could use these calculations when deciding whether to offer a special. In the eight large simulation-based experiments we conducted, we find that it is important to estimate revenue cannibalization from full-fare customers. The calculations prove to be far more accurate for night-owl specials than for early-bird specials. This has important implications for decisions about offering the specials and raises a flag regarding a potential marketing-operations conflict.

You can read “Deciding Whether to Offer ‘Early-Bird’ or ‘Night-Owl’ Specials in Restaurants: A Cross-Functional View” by from Journal of Service Research by clicking here. Want to be notified of all the latest research like this from Journal of Service Research? Click here to sign up for e-alerts!

A Behind-the-Scenes Look at Hollywood’s Gender-Wage Gap

JMI_72ppiRGB_powerpointKaley Cuoco recently learned the hard way to be careful what you say in an interview after her comments on feminism in the February issue of Redbook magazine provoked some harsh criticism from the media and fans alike. When asked if she considered herself a feminist, the 29-year old actress was quoted as saying “Is it bad if I say no? … I was never that feminist girl demanding equality, but maybe that’s because I’ve never really faced inequality.”

If it is true that she hasn’t run up against gender bias in her acting career, Cuoco is a rare case. The New York Film Academy looked at how women are portrayed in the top 500 films between 2007 and 2012 and found that only 30.8% of speaking characters were women, a third of which were shown partially naked or in sexually revealing clothing. They even found that this latter trend increased 32.5% for teenage actresses in the years studied.

What’s more, while the immediate backlash from her comments may have caused Cuoco to go on what she jokingly calls her “apology tour,” the sad truth is if she hasn’t experienced inequality yet, it might just be a matter of time. A recent study published in Journal of Management Inquiry entitled “Age, Gender, and Compensation: A Study of Hollywood Movie Stars” found that a female actor’s age may play an additional role in Hollywood’s gender-wage gap:

The abstract:

Research on the gender-wage gap shows equivocal evidence regarding its magnitude, which likely stems from the different wage-related variables researchers include in their calculations. To examine whether pay differentials solely based on gender exist, we focused on the earnings of top performing professionals within a specific occupation to rule out productivity-related explanations for the gender-wage gap. Specifically, we investigated the interaction of gender and age on the earnings of Hollywood top movie stars. The results reveal that the average earnings per film of female movie stars increase until the age of 34 but decrease rapidly thereafter. Male movie stars’ average earnings per film reach the maximum at age 51 and remain stable after that.

You can read “Age, Gender, and Compensation: A Study of Hollywood Movie Stars” from Journal of Management Inquiry for free by clicking here. Want to know about all the latest research like this? Click here to sign up for e-alerts from Journal of Management Inquiry!