No . 2024 When Is Happiness About How Much You Earn ? The Effect of Hourly Payment on the Money - Happiness Connection

We argue that the strength of the relationship between income and happiness can be influenced by exposure to organizational practices, such as being paid by the hour , that promote an economic evaluation of time use. Using cross-sectional data from the US, two studies found that income was more strongly associated with happiness for individuals paid by the hour compared to their non-hourly counterparts. Using panel data from the United Kingdom, Study 3 replicated these results for a multi-item General Health Questionnaire measure of subjective well-being. Study 4 showed that experimentally manipulating the salience of someone’s hourly wage rate caused non-hourly paid participants to evince a stronger connection between income and happiness, similar to those participants paid by the hour. Although there were highly consistent results across multiple studies employing multiple methods, overall the effect size was not large. The Money-Happiness Connection 2 When Is Happiness About How Much You Earn? The Effect of Hourly Payment on the Money-Happiness Connection Over the last several decades, there has been enormous interest from scholars in the social sciences—particularly economics (e.g., Layard, 2005) and psychology (Diener & Seligman, 2004)—in understanding what affects individuals’ happiness. This research has found, among other things, that people fail to accurately predict what will or what will not make them happy (e.g., Wilson, Wheatley, Meyers, Gilbert, & Axsom, 2000) and that donating money and time for the benefit of others increase happiness (e.g., Dunn, Aknin, & Norton, 2008; Wilson & Musick, 1999). Although researchers have approached the study of happiness in a variety of ways, conceptually the measurement of happiness has been typically based either on the experience of negative/positive affect both overall and in moment-to-moment variation, or has employed retrospective cognitive evaluations about one’s life (Diener, 1984; Diener, Suh, Lucas, & Smith, 1999; Kahneman & Krueger, 2006). For purposes of exposition, we use the terms happiness and subjective well-being interchangeably as both relate to cognitive evaluations about one’s life as a whole or one’s psychological well-being. Within the broader study of happiness, one theoretically important question has focused on whether higher income and increases in income are associated with greater subjective wellbeing (e.g., Layard, 2005; Kahneman, Krueger, Schkade, Schwartz, & Stone, 2006; Stevenson & Wolfers, 2008). The so-called Easterlin hypothesis (Easeterlin, 2003) argued that societal level increases in income do not produce corresponding increases in societal-level happiness. Recent challenges to the Easterlin hypothesis have come from Stevenson and Wolfers (2008), who The Money-Happiness Connection 3 maintained that a consistent relationship between income and happiness does exist, thereby empirically demonstrating that, as predicted by economics, income was an important determinant of happiness. What seems clear from the existing research is that income and happiness are at least positively correlated in cross-sectional studies (e.g., Diener & Biswas-Diener, 2002; Kahneman et al., 2006). Indeed, Easterlin (2001, p. 468) has written: “As far as I am aware, in every representative national survey ever done a significant bivariate relationship between happiness and income has been found.” The strength of the relationship between income and happiness, however, varies considerably across studies and samples. Moreover, researchers have begun to explore individual differences that can moderate the link between income and subjective wellbeing. For instance, Malka and Chatman (2003) have shown that the connection between subjective well-being and income varies depending on individuals’ extrinsic and intrinsic orientations towards work, with individuals with a more extrinsic work orientation exhibiting a stronger association between income and subjective well-being. Although individual differences can affect the relationship between income and subjective well-being, we hypothesize that organizational experiences may also play a role in understanding why some individuals evaluate their satisfaction with life differently from others. One way of explaining variation in the relationship between income and happiness is to take seriously the large literature on focalism, which posits that people do not continuously think about their circumstances but when they are primed to do so, for instance, by questions about specific aspects of their life such as dating, a correlation between the dimensions queried and happiness can be made to appear (e.g., Schwarz & Strack, 1999). Although the focalism literature often explores relatively transitory effects, there is evidence that organizational The Money-Happiness Connection 4 arrangements, such as how people are paid (e.g., DeVoe & Pfeffer, 2007a, 2007b; Evans, Barley, & Kunda, 2004; Yakura, 2001), may cause people to alter their perspective on the relationship between time and money. In the present paper, we use three sets of nationally representative survey data from two different countries as well as an experiment to test the theoretical prediction that people paid by the hour or who are temporarily made aware of their hourly wage rate exhibit a stronger relationship between income and happiness. The hypothesis is that organizational arrangements make some aspects of a person’s work environment more or less salient and thereby affect individual’s judgments and attitudes, including how strongly they use income in evaluating their subjective well-being. Background and Hypotheses We argue that one factor often overlooked in the literature exploring the relationship between income and happiness are the organizational arrangements that make the connection between time and money and the monetary opportunity costs of time more or less salient. Because how time is used is inextricably linked with an individual’s personal identity and values (Mogilner & Aaker, in press; Reed, Aquino, & Levy, 2007), the way someone evaluates his or her time is likely to influence the very criteria used to assesses happiness. Therefore, organizational arrangements, such as being paid by the hour (DeVoe & Pfeffer, 2007a) or billing one’s time on a timesheet (Yakura, 2001) can be psychologically important for understanding whether and to what extent individuals are likely to rely on income in evaluating their happiness. To develop the logic for this hypothesis, we first review literature in organizational behavior that shows that organizational practices can cause people to become economic The Money-Happiness Connection 5 evaluators of their time. Then we review the decision making literature that demonstrates the important role of focalism on the evaluation of subjective well-being. We argue that organizational arrangements that make the connection between time and money salient can be expected to cause people subject to those conditions to rely more heavily on income in assessing their subjective well-being. Organizational Practices as Activators of Economic Evaluation One example of organizational practices activating an economic evaluation, in this instance, of time use, is Evans et al.’s (2004) ethnographic study of eng ineers, software developers, technical writers, and information technology specialists who overwhelmingly sold their services to firms in exchange for an hourly wage. Being paid by the hour and the concomitant requirement to bill firms for the number of hours spent working (i.e., billable hours) led technical contractors to develop “an accountant’s appreciation for the microeconomics of time” (p. 19). Billing hours provided these contractors with extensive practice in accounting for their time and its monetary value. Because they were paid by the hour, “unlike salaried employees, contractors could put a precise value on every hour of the day—their hourly wage.” (p. 21). Evans et al. observed that exposure to these organizational practices led the vast majority (86% to 91%) of hourly contractors to be economic evaluators—apprising time’s value “solely by economic criteria” (p. 21) with only a small minority evaluating their time using a broader set of criteria, such as personal satisfaction and social obligations. Thus, as economic evaluators, these respondents focused almost exclusively on the monetary value of their time when making decisions about time use, for instance, whether or not to take time off. The Money-Happiness Connection 6 Building on Evans et al.’s (2004) ethnographic work, DeVoe and Pfeffer (2007a, 2007b) examined the consequences of organizational practices that activate economic evaluation by analyzing the effect of hourly payment in nationally representative surveys and by having people calculate their hourly wage in experimental settings. They found that being paid by the hour was associated with a greater tendency for people to think of time more like money, to be more willing to trade more of their leisure time to earn more money, and to be less willing to volunteer their time and to actually spend less time volunteering. Importantly, manipulating the salience of a respondent’s hourly wage rate caused non-hourly individuals to respond more like their hourly paid counterparts. The interaction of the demographic variable of hourly-paid status with the experimental treatment of calculating an hourly wage is highly consistent with the psychological concepts of accessibility and salience associated with contemporary theories of knowledge activation (for a review see Higgins, 1996). Once knowledge is acquired (e.g., the precise monetary value of one’s time), it is encoded in long-term memory (Anderson, 1995). When knowledge of the precise monetary value of one’s time has recently been made salient, the probability of it being more focal in decisions increases. Similarly, frequent priming increases the overall accessibility of the information and the likelihood of the information being focal in future decisions. Here the organizational practice of hourly payment is consistent with a situation that frequently primes the precise monetary value of one’s time and thus makes the monetary returns of time more salient and focal in evaluations and decisions. Thus, currently being paid by the hour is likely to influence evaluation by making the monetary value of one’s time chronically accessible while calculating one’s hourly wage rate is likely to temporarily make the monetary returns of time salient for individuals for whom it is not already chronically salient. The Money-Happiness Connection 7 A logical implication of organizational practices affecting economic evaluation is the possibility that such practices can cause people to focus more on income not only when thinking about their time but also when evaluating overall happiness. In a seminal paper, Kahneman, Krueger, Schkade, Schwarz, and Stone (2006) have argued that evaluations of subjective wellbeing may be prone to a focusing illusion: “when people consider the impact of any single factor on their well-being...they are prone to exaggerate its importance” (p. 1908). In other words, a stronger positive relationship between income and well-being can exist because individuals focus on economic factors more when assessing their happiness. If organizational practices—such as hourly payment—lead individuals to focus on time’s economic value, individuals frequently exposed to these practices may be more likely to rely on economic factors such as the amount of money they earn when evaluating their overall happiness. The Central Role of Focalism in Subjective Well-Being Evaluations Extensive research in decision making has shown that individuals often fail to retrieve all relevant information when making judgments and often overweight information that happens to be most accessible at the moment the evaluation is being made. In their review of this literature as it relates to judgments of subjective well-being, Schwarz and Strack (1999) distinguished between influences on judgments of subjective well-being that are 1) due to information that is made temporarily accessible, such as information that has been just used to answer a previous question in a questionnaire, or 2) due to information that is chronically accessible—information that is made frequently salient in an individual’s mind. Examples of how temporarily salient information is used in making evaluations of subjective well-being come from a series of studies conducted by Schwarz and colleagues (Schwarz, Strack & Mai, 1991; Smith, Schwarz, Roberts, & Ubel, 2006; Strack, Martin, & The Money-Happiness Connection 8 Schwarz, 1988). Participants who provided evaluations of their subjective well-being often exhibited a low or non-significant correlation between happiness and things such as dating frequency, marital satisfaction, or health. However, when respondents provided information on their dating frequency, marital satisfaction, or health just prior to their evaluation of subjective well-being, significant and stronger correlations emerged with evaluations of subjective wellbeing. Thus, the stronger empirical relationships provided evidence that participants focused more on information that was made temporarily salient in their evaluations of subjective wellbeing. But if information on any particular dimension is chronically accessible, that information should already be focal when an individual provides an uncontaminated assessment of subjective well-being (Higgins, 1996; Schwarz & Strack, 1999). The implication we draw from this decision making literature is that salient information is given more weight when respondents form their assessments of subjective well-being, as reflected in an increased correlation between the information and the subjective well-being evaluation. In the context of the present research, if hourly payment promotes a chronic tendency to economically evaluate time and happiness, we would expect the amount of income a respondent earns to be a focal and salient aspect of their evaluations of subjective well-being. Moreover, we would expect that among non-hourly paid workers for whom economic evaluation is not chronic, we should be able to cause income to become a more focal and salient aspect of their subjective well-being evaluations merely by making an hourly wage rate for time temporarily accessible. Therefore, in addition to the chronic differences we predicted to emerge across hourly status, we also experimentally manipulated the connection between time and money to be more accessible by making non-hourly paid workers temporarily aware of their approximate hourly wage rate. Using a variation on the manipulation of calculating an hourly The Money-Happiness Connection 9 wage rate employed by DeVoe and Pfeffer (2007a, 2007b), we hypothesized that non-hourly paid workers who were primed to be economic evaluators by temporarily having an hourly wage rate for their time made salient would rely more on their income when evaluating their subjective well-being in a manner similar to hourly paid workers’ more chronic state of economic evaluation.