Do wages underestimate the inequality in workers' rewards? The joint distribution of job quality and wages across occupations

Abstract

Information on both wages and job quality is needed in order to understand the occupational dispersion of wellbeing. We analyse subjective wellbeing in a large UK sample to construct a measure of ‘overall reward’, the sum of wages and the value of job quality, in 90 different occupations. If only wages are included, then labour market inequality is underestimated: the dispersion of overall rewards is one-third larger than the dispersion of wages. Our findings are similar, and stronger, in data on US workers. We find a positive correlation between job quality and wages in all specifications, both between individuals in the cross-section and within individuals in panel data. The gender and ethnic gaps in the labour market are larger than those in wages alone, and the overall rewards to education on the labour market are underestimated by earnings differentials alone.