Do higher wages come at a price?

Using linked employer–employee data for Britain we find that higher wages are associated with higher job satisfaction and higher job anxiety. The association between wages and non-pecuniary job satisfaction disappears with the inclusion of effort measures whereas the positive association between wages and job anxiety remains strong and significant providing no support for a compensating differential explanation, but rather for a ‘gift exchange’ type of reciprocal behaviour. No support is found for the proposition that within-workplace wage differentials are a source of job anxiety.

► Higher wages are associated with higher job satisfaction and higher job anxiety. ► The positive association between wages and job anxiety is robust to effort controls. ► Findings are at odds with a compensating differentials story but consistent with ’gift exchange’. ► Higher wages induce more stress if workers feel obligated to perform better in return for higher pay. ► Within-workplace wage differentials are not a source of job anxiety.