Flexible Contracts and Subjective Well-Being

By Green, Colin P.; Heywood, John S. | Economic Inquiry, July 2011 | Go to article overview

Flexible Contracts and Subjective Well-Being


Green, Colin P., Heywood, John S., Economic Inquiry


I. INTRODUCTION

This article estimates the influence of flexible--more contingent--employment contracts on job satisfaction and life satisfaction. Hedonic labor market theory suggests that workers sort across contract types maximizing their utility. To the extent that flexible contracts contain undesirable characteristics, this process generates either compensating earning differentials or other offsetting desirable characteristics (Rosen 1974). As a single illustration, flexible contracts exhibit greater job insecurity (Blanchard and Landier 2002), but job insecurity generates higher compensating earnings (Abowd and Ashenfelter 1981). Thus, the net influence of flexible employment contracts remains an empirical question.

We estimate the determinants of job satisfaction testing the prediction that the labor market generates equalizing differences associated with flexible contracts. As Hamermesh (2001, 2) puts it, job satisfaction is the only measure "that might be viewed as reflecting how (workers) react to the entire panoply of job characteristics" and as such "it can be viewed as a single metric that allows the worker to compare the current job to other labour market opportunities." Thus, job satisfaction measures allow a summary worker evaluation of the consequences of flexible employment contracts. (1) If such contracts consistently associate with large negative job satisfaction differentials, it becomes more difficult to argue for a hedonic or equalizing differences view of this aspect of the labor market. Yet, even in the presence of large job satisfaction differentials, it may be the case that workers in flexible contracts trade off lower job satisfaction for higher satisfaction in other aspects of life such as fulfilling family responsibilities, undertaking education, or arranging leisure activities. Examining overall life satisfaction tests the influence of flexible contracts on well-being in a framework that accounts for these potential trade-offs as well as the equalizing differences that may happen within the labor market.

This article estimates the relationships between a variety of flexible employment contracts and a range of dimensions of job satisfaction: job security, pay, hours, the work itself, and overall. Moreover, by controlling for worker fixed effects, we provide the first estimates that potentially account for sorting across the variety of employment contracts. By also estimating the determinants of life satisfaction, we provide evidence on whether flexible contracts may be associated with offsetting benefits outside the realm of work. Our evidence provides a counterbalance to earlier research (Beckmann et al. 2007; Booth et al. 2002; D'Addio et al. 2007; De Graaf-Zijl 2005a). Flexible contracts play at most a minor role in diminishing job satisfaction and this role is limited to diminishing satisfaction with job security. Moreover, flexible contracts play no role in diminishing overall life satisfaction among the employed. These results appear broadly supportive of labor markets generating equalizing differences for flexible contracts.

The next section discusses predictions and evidence about the relationship between flexible contracts and job satisfaction. The third section presents our data and testing methodology. The fourth section presents the initial results contrasting the cross section and fixed effects estimations. The fifth section presents extensions focusing on the role of job security and using measures of life satisfaction. The sixth section presents the conclusion.

II. FLEXIBLE CONTRACTS AND JOB SATISFACTION: THEORY AND EVIDENCE

Flexible employment contracts have become increasingly prevalent among the Organisation of Economic Cooperation and Development countries (Mangan 2000). (2) This increasing prevalence reflects changes in labor market regulation, technological change, and increasing female labor force participation. Past evidence suggests that flexible employment contracts are associated with lower levels of employer provided training (Arulampalam and Booth 1998; Draca and Green 2004), higher risk of social exclusion (D'Addio and Rosholm 2005), lower wages in the United Kingdom (Booth et al. …

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