December 11, 2009
Hourly Pay Brings More Joy Than Salary?

Happiness comes by the hour.

Los Angeles, London, New Delhi, Singapore and Washington DC (December 10, 2009) People paid by the hour exhibit a stronger relationship between income and happiness, according to a study published in the current issue of Personality and Social Psychology Bulletin (PSPB), the official journal of the Society for Personality and Social Psychology.

Researchers explored the relationship between income and happiness by focusing on the organizational arrangements that make the connection between time and money. They found that the way in which an employee is paid is tied to their feeling of happiness.

Thinking that you are primarily working to earn a medium of exchange makes you more happy?

The researchers theorize that hourly wage-earners focus more attention on their pay than those who earn a salary. That concrete, consistent focus on the worth of the employee's time in each paycheck influences the level of happiness the employee feels.

"Much of our day-to-day lives are subject to various organizational practices of payment that can prime different ways of thinking, such as the monetary value of one's time," write authors Sanford E. DeVoe of the University of Toronto and Jeffrey Pfeffer of Stanford University. "It is important to consider the broader context in which people live and work in order to gain a better understanding of the determinants of happiness."

Would you rather make $500 per hour or $1 million per year? I would prefer the $500 per hour if I thought I could be sure of getting enough billable hours.

Share |      Randall Parker, 2009 December 11 09:35 PM  Brain Economics


Comments
Jim said at December 12, 2009 4:00 AM:

Score keeping, we gotz it.

GS said at December 12, 2009 9:59 AM:

In a salary job, the longer hours you are forced to work the less you are being paid per hour. Makes you feel like crap if you consistently get stuck doing more hours than someone else who has the same position and salary just because you got put on a worse case (consulting) or whatever. The worst is an all nighter. Now you worked your ass off and your pay rate is approaching minimum wage. So it creates a perverse incentive where you get paid 'less' the more you work. On the other hand, people on wages get overtime so they can feel good about working hard. There is a consistent reward.

Bob Badour said at December 12, 2009 2:56 PM:

Hourly wage earners in general make less money than salaried workers. After one makes a certain reasonable minimum, increases in pay make little difference. Hourly workers generally earn at or below that reasonable minimum, while salaried workers generally earn more.

I don't find the results surprising, and I don't think the results say what Randall is suggesting they say. An increase in a poor person's wealth improves his mood more than an increase in a rich person's wealth. Big deal.

I once saw Arnold Schwarzenegger explain on Oprah that money doesn't buy happiness because he was no happier with $50 million than he had been with $48 million.

Then again, the vast majority of salaried workers are very, very far from the top of their status hierarchy or even the arithmetic average whereas hourly workers mostly see themselves as all in the same boat because the minimum, median and mean are much closer together.

pond said at December 13, 2009 6:31 AM:

This reminds me of the years I worked part-time at a convenience store. I worked every Saturday; paychecks came in on the following Thursday, but because I had my full time job, I waited until I came in to work to get and cash the paycheck.

Thus, every day I came to work at this job, the day began with cash in my pocket.

It was a wonderful reinforcement.

In the long run, I feel as though other factors make us happier at work, such as a feeling that the work we are doing is good and important, and a feeling that our bosses like us, appreciate our work, and are supportive of us.

But that every-workday paycheck was a great way to start the day!

PacRim Jim said at December 13, 2009 9:37 AM:

It's simply a matter of control over one's life. Perceived helplessness increases stress.

Lili von Shtupp said at December 13, 2009 10:38 AM:

Yeah, that extra cash (or extra time off in the future if it was a guvmint job) sure did make me feel happy. Working extra as a salary worker? Nope, not even if I got a "bonus" later, because it never seemed to be adequate compensation for the extra hours I put in. Besides, I seemed to get more respect for my time and trouble if I was on the clock. It was costing them more money to keep me around, which wasn't the case on salary. If I was on salary, well...no skin off their nose if I had to stay late or come in early. It was the same amount of money either way.

Donald Sensing said at December 13, 2009 10:41 AM:

Let's see: $500 per hour or $1 million per year? Well, there are 2,000 work hours per year in a standard, wage-based job. Do that math. But I would choose the $500 per hour and try to get as much overtime as possible!

Bob Young said at December 13, 2009 10:51 AM:

Generally I agree with this. However, where incentive wages (time and a half, double time) are paid for overtime, I've seen it badly exploited.

Hourly workers will drag their feet working on straight-time, pushing the work into the weekend where overtime wages are paid. Then on Saturday and Sunday, the week's work finally gets done....at an incredible rate. Needless to say this is in a union environment, thus little is done about it. So the incentive of the "incentive wages" can be to foot-drag during the normal work week.

OTOH, if a tight schedule demands O.T. work from the outset; the incentive pay is both fair and necessary.

As a retired salaried guy, I much enjoy the hourly pay I get for my part-time work. I do think it's the basis for a happier working relationship. While working salaried, I sometimes got the equivalent of straight-time pay for working long weekends and holidays in support of crash projects. It was much appreciated.

davidr said at December 13, 2009 10:54 AM:

What about those on commission?

Uncle Sam said at December 13, 2009 10:56 AM:

Doctors are currently paid for piece work which rewards both efficiency and effort. Watch their productivity plummet when they become salaried government workers.

Don in AZ said at December 13, 2009 10:56 AM:

It's about control. With a salary there's the implication that the payer of the salary controls the life. With a wage the reverse is the case. You're paying me for the time I'm here, but not for my life. Salaried positions, particularly higher-paying ones, come with the often strong message that you're "owned" by the company.

Mike_K said at December 13, 2009 11:11 AM:

Doctors are already anticipating their decline in income and transition to salary. Medical students and doctors in training are far less willing to work long hours. The most popular specialties involve shift work. This will exacerbate the coming shortage but, don't worry, the government has plans to shift medical care to thousands of lower trained providers.

R.C. said at December 13, 2009 11:14 AM:

Oh this is old news.

Hourly is far more rewarding, emotionally. (So long as you control for the type of job you're doing and the degree of respect shown to you by your peers.)

If you're working hourly, you get paid for every hour you work. If there's work to do, you work, you get paid. It feels like a fair trade. If there's nothing to do, you don't work, and you don't get paid...but that feels like a fair trade too, plus you get free time to do as you please. And so long as you had enough hours all together each month to make ends meet, it's not a problem.

But if you're on salary, you get paid a fixed amount. If there's more work to do than you can accomplish in a normal work-week, then you have to work overtime, but you don't get paid any extra, so you feel like you're getting shafted. On the other hand, if there's less work to do than you can accomplish in a normal work week, it feels unsafe to just leave early -- what if the boss comes looking for you and you aren't there? If you give the impression that you don't want to be there a full work week, is your job at risk?

So you stick around the office, reorganizing the pencils on your desk and archiving your e-mails and playing flash games on the web when no-one's looking, feeling dishonest about being paid for it and disgruntled that you dare not leave and go do something interesting elsewhere.

Hourly is better.

Contractor said at December 13, 2009 11:47 AM:

I worked as a salaried systems analyst many years ago. The company in Houston, whose CEO is FINALLY in prison, worked us like dogs. 40 hrs to get the job, 60 hours to keep it, 80 hours to advance. Most people just padded their time cards to make it look like they were doing 60 hours. I was raised Lutheran, and just couldn't do it, and got hauled on the carpet several times in my 10 months there. It was making me mental, so I went out on my own, contracting with oil companies. I made $27/hour, very good money then. If I worked 40 hours, it was 40 X $27, 60 was 60 x $27. Work more, get paid more. I really liked it.

Also, as a independent business person, I had to pay all my SS etc, but was able to sock away a lot into a Keough, that I would have otherwise had to pay to the IRS.

The last year I worked I earned just north of $60K, and put over $25K into my Keough. Then I started having children and quit to raise them. I mostly ignored my $25K for almost 2 decades, but just before the market tanked during the 2008 presidential campaigns, that $25K had turned into almost $250K. I don't think I could have started my nest egg with that much had I continued to stay on a salary. And I was MUCH happier.

In the intervening years, I taught music lessons in Saudi Arabia, and asked to be paid at each lesson, rather than in advance. I'm not much of a bookkeeper, and this way it was simple. I found it extremely rewarding, similar to pond at December 13, 2009 6:31 AM. Every time I reached into the pocket of my bluejeans, I pulled out 50 or 100 riyals. It felt like magic.

Hourly is the way to go, especially if you're a high earner. IMHO. Salaried is the way to go if you need serious health insurance, at least until Congress wrecks health care as they're trying to do now. Then, nothing will work for long.

baldanders said at December 13, 2009 11:53 AM:

Makes some sense to me. But as someone above mentioned, salary can be a very bad deal if you work a lot of hours. I took my last salaried gig because I really wanted the steady paycheck. I had just moved to NYC and had never paid anything near that kind of rent before, so I was frankly a bit scared of freelancing (and it's also really hard to find permanent digs of your own in the city without either a paycheck or a guarantor with a lot more money than anyone in my family had.) I went from billing between $50.00 and $75.00 an hour to making first 60k, and eventually around 85k, which isn't a huge amount of money in NYC (I also got some points in the company to compensate for the low salary, but I never figured I would see any money from that.)

The problem was that people wound up with no respect for my time, because it didn't cost them anything above my salary. And pretty much what the other people in the company did for a living was think up things for me to do, so it was to their advantage to load me down with as many projects as they could, because it only took them a few hours to come up with something for me to do that would take a lot of hours. So I wound up working a lot of hours even by the standards of the tech world. That's enough to make you really unhappy on salary, because when you start figuring out your hourly wage you start thinking that you would make more per hour as a janitor, if you were in the union. Quite a lot more.

Beyond that I always really did like the feeling that I would work an hour and go "ka-ching!" so this finding doesn't surprise me even without the issue of having your time treated as if it isn't valuable in a salaried position. I would pretty much always rather bill by the hour if I can be sure of getting enough hours to get by.

kevIN said at December 13, 2009 12:33 PM:

I'm salaried fully time but only work ~35 hours a week. Plus I have the ability to leave early or come in late if 'something comes up'. I don't abuse it, but I enjoy the extra freedom I get by not being on the clock. Only rarely does something come up that requires me to actually work more than 40 hours a week.

ann mere said at December 13, 2009 1:09 PM:

I am a teacher working for Los Angeles Unified School District. By union contract we are only paid for 6 hrs a day, no matter how many hours we work. We are not given any prep time. I try to keep my work to 7 hrs a day, although occasionally I must take homework with me after school to check it for free. There are 180 school days a year. So I'm working a minimum of 180 extra hours. I would rather be paid hourly for the hours I truly work.

Also we work for 9 months a year, but the school district keeps our money and spreads it over 12 months, keeping the interest earned over a 2 month period year after year.

The school district and the teachers union treat us like children and as though we cannot manage our own money. And the school district gets a lot of free labor from teachers (daily extra hours, school fair, parent/teachers conferences, back to school nights, preparation, and the purchase of teaching materials by teachers, etc.)

Barry D said at December 13, 2009 1:56 PM:

Salary can feel like leasehold slavery. The employer leases you for $X per year, and you work.

Hourly pay can feel like compensation for one's work.

Pay by accomplishment can feel even better, but isn't a legal option for everyone in the US.

Barry D said at December 13, 2009 2:00 PM:

BTW my preference would be $500 per hour, with sufficient billable hours.

As expensive as some of my tastes may be, I don't need $1 million to live for a year and thoroughly enjoy myself. So the option to work less than 2000 hours, without losing my ability to continue working, would be worth more to me than the million without significant time off.

See, no matter how hard I work, or how much I slack, I'm going to die. I'd just as soon live in the mean time, and working at one thing all the time isn't living, even IF I enjoy my work immensely.

DCE said at December 13, 2009 2:01 PM:

Though working in one of the 'professions' I am paid hourly. I find that works for me even though my rate is 'lower' than others on salary. However since my job does require semi-regular overtime I end up ahead of the game at the end of the year as compared to my peers. And I find the psychological aspect is as described in the post; one hour's pay for one hour's work is far more satisfying than the ambiguity of being on salary.

Celia Hayes said at December 13, 2009 4:49 PM:

Chalk me up for the "hourly work-hourly paid" brigade. I honestly have felt much more in control of my time, and of my life. The high salary-paid-for-a-theoretical 40 hours per week was too often,in my experience, an excuse for the employer to abuse the deal. Sorry, to my way of thinking about it - my time is for rent, and I bring considerable skills to the table. You want to utilize them for 10+ hours a day? OK, then - here's the invoice.
I've been on salaried jobs where the amount of hours I put in on it, worked out to about the amount per hour that fruit-pickers were going on strike about.

Clarium said at December 13, 2009 7:00 PM:
I once saw Arnold Schwarzenegger explain on Oprah that money doesn't buy happiness because he was no happier with $50 million than he had been with $48 million.

No, money does buy happiness. He just means the marginal effect on happiness declines at higher levels of wealth/income.

Patrsup said at December 14, 2009 4:12 AM:

I have the best of all worlds, Salary with overtime. I do think that hourly pay makes the works more satisfied at the end of the week. I make more than I need but not more than I want (there is always another toy out there). As alluded to earlier, I do think money is a means to an end and happiness (or lack of it) is a state of mind, we are all going to die. Don't invest your finite hours in doing something you don't like for less than you are really worth (this is why unions do well - they artificially raise pay and the workers know they are being paid more than they are worth). My wife teaches - she is at the school about 11 hours a day (including drive time) for less than 22k a year, I would never do it - but she is the happiest person you have ever been around because she is doing something she loves and someone is willing to pay her for it.

bandit said at December 14, 2009 5:42 AM:

If your rate is $500/hr that's roughly equivalent to $700 - $750 after you factor in the loss of billable hrs. do to holidays, time off, no employer contribution to health care, 401K, self employment tax, 'temporary tax' and other incidentals. I'd still rather work hourly but you have to factor in your rate adjustment.

Bob Badour said at December 14, 2009 10:42 AM:
He just means the marginal effect on happiness declines at higher levels of wealth/income.

That's the valid conclusion to draw, but that's not what he said. To their credit, the audience booed.

T. J. Simons said at December 14, 2009 12:54 PM:

I began my current job 5 years ago after spending 20-odd years as a salaried employee. 3 months after I started with my current firm, everyone in the company but Partners and VPs were classified as hourly employees. If I have anything to say about it, I'll never go back to a salaried position.

I get paid overtime, and to some extent get compensated for travel time (the company has a policy stipulating how much time we can log for flight waiting times, etc.-anything else is unpaid time). There's no true compensation for the time away from home and family, but when I'm getting compensated for some of the travel time, that helps.

We don't automatically pay overtime if work spills over into the weekend of at night-managers are required to get advance approval for overtime work, and we have to submit an hourly estimate and description of the work we expect to perform on overtime.

In a profession (A/E) notorious for abusing salaried employees' time, this is the only way to go as far as I'm concerned

WMDimes said at December 14, 2009 1:31 PM:

There's no worse job than working in a kitchen for a salary. Nobody does it. If we ever see someone doing that we laugh at them and spit on them; they tend to think they're smarter than everyone. You get crazy overtime for restaurant work, but it's also dirty, aggravating, and dangerous.
I work an hourly wage, and while you have a measure of control, it's much easier to be sent home early because the employer wants to save money. If you're working in retail, or in a restaurant, or pretty much anything in customer service, you essentially have no job from January until March, and maybe even a bit after that. I've been in that situation a lot and you need to think creatively on how to pay rent and eat food. If you're not in a union you get tossed around. I worked a total of 8 hours this weekend and I was supposed to have 16.

If you factor all these together, while you have a measure of control with hourly wages, it becomes much more difficult to plan your life. Nothing is guaranteed and your schedule always changes. This greatly affects people with things going on outside of work, like school or a second job. For someone like me, a salary seems very attractive; relinquish some control for a bit more freedom. But all the scenarios presented previously make sense as well.

jl said at December 15, 2009 8:27 AM:

I used worked a salaried job that had an on call rotation. So there were many times we worked more than 40 hours in a week. However, we were allowed some comp. time and we also had a bonus program with company, team and individual goals that amounted to @ 10-15% of your salary. Now I work a salaried job with no bonus, no comp time and they just cut our pay by 4%! Think I'm motivated to work harder?

Anonymous said at November 9, 2010 1:17 PM:

hahaha...try working in the military...paid salary but working atleast 12 hours a day, sometimes 24 hours and on call!!!...

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