Academic journal article Review of Social Economy

The Determinants of Perceived Underpayment: The Role of Racial Comparisons

Academic journal article Review of Social Economy

The Determinants of Perceived Underpayment: The Role of Racial Comparisons

Article excerpt


The determinants of perceived underpayment are estimated using a sample of young employed physicians. The estimates indicate that minority and white physicians build both intraracial and interracial income comparisons into their perceptions of underpayment.

The setting for this inquiry borrows heavily from the on-going research on the "economics of job satisfaction." This research borrows heavily, in turn, from the social psychology literature on relative deprivation and posits that a fundamental determinant of job satisfaction is the gap between the worker's own earnings and those of comparison workers. Several choices of the proper comparison workers (and so the proper comparison earnings) have been examined. Clark (1996b) finds a strong intra-household effect. Workers report lower job satisfaction when the earnings of a spouse or other family member are higher. More generally, Clark and Oswald (1996) find lower job satisfaction when the earnings of workers with similar characteristics are higher. Their specification shows that job satisfaction varies positively with the worker's actual earnings but negatively with the worker's predicted earnings as taken from a typical wage equation.(1) They recognize that their specification roughly amounts to including the residual from the wage equation in the estimation of satisfaction. Hamermesh (1977) investigated the same question two decades ago and found that, indeed, the residual emerged as a positive determinant of job satisfaction.

While the potential for racial comparisons has not been addressed in the literature on job satisfaction, previous empirical studies have attempted to confirm that workers perceive the extent of discrimination to which they are subject. Kuhn (1986), Barbezat and Hughes (1990), and Heywood (1992) each fail to provide such confirmation. Instead, they present evidence that women and minorities are no more likely to report being subject to discrimination when they face large earnings differentials than when they face small or no earnings differential. Hampton and Heywood (1993), on the other hand, present evidence for women indicating that perceptions of earnings adequacy are influenced by the extent of discrimination. No analogous result has yet been found for racial minorities.(2)

The examinations of whether workers correctly perceive earnings discrimination have not been done in the context of the job satisfaction literature.(3) Thus, the earlier estimates of satisfaction with earnings, racial treatment, and affirmative action have not controlled for comparison income and therefore potentially mismeasure the role of racial and gender earnings gaps. Workers with earnings below their comparison earnings would also tend to have larger racial earnings gaps. Thus, any partial correlation between satisfaction with earnings and the racial earnings gap that does not control for comparison income could simply be spurious.

The next section describes the data and measures of racial earnings differences. The third section explains our measure of perceived underpayment and presents our testing framework for examining its relationship to comparison earnings and the racial earnings gap. The final section draws several tentative conclusions.


The American Medical Association (AMA) undertook an extensive survey of young physicians in 1987. The sample was drawn from the AMA Physician Masterfile of the entire U.S. physician population (including those not members of the AMA). Successful interviews were completed with 5,865 physicians who were all under the age of 40 and in their first six years since residency. The responses were merged with other data from the AMA's ongoing Socioeconomic Monitoring System (SMS) and the Association of American Medical Colleges' Student and Applicant Information Management Systems. The result is a detailed sample of highly educated young workers in a single occupation. …

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