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Coping with Low Pay: Cognitive Dissonance and Persistent Disparate Earnings Profiles

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  • Duncan Watson
  • Robert Webb
  • Alvin Birdi

Abstract

The paper focuses on an employee’s perception of his or her own labour market outcome. It proposes that the basic earnings function, by adopting an approach that ignores perception effects, is likely to result in biased results that will fail to understand the complexities of the wage distribution. The paper uses an orthodox job search framework to illustrate the nature of this problem and then adapts the model to take onboard the theory of cognitive dissonance. The search model indicates how workers may adopt a coping strategy in order to reduce the disutility associated with the wage underpayment that develops. Then, by modelling cognitive dissonance, the paper highlights the weaknesses of using purely human capital proxies to understand labour market outcome. The analysis goes some way to explaining why individuals with equivalent human capital investment can have disparate earnings profiles. Copyright Springer 2004

Suggested Citation

  • Duncan Watson & Robert Webb & Alvin Birdi, 2004. "Coping with Low Pay: Cognitive Dissonance and Persistent Disparate Earnings Profiles," Theory and Decision, Springer, vol. 57(4), pages 367-378, December.
    • Handle: RePEc:kap:theord:v:57:y:2004:i:4:p:367-378
    DOI: 10.1007/s11238-005-0121-2
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    References listed on IDEAS

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    1. Hall, S.G. & Henry, S.G.B., 1987. "Wage Models," National Institute Economic Review, National Institute of Economic and Social Research, vol. 119, pages 70-75, February.
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