Empirical studies on job satisfaction have relied on two hypotheses: firstly, that wages are exogenous in a job satisfaction regression and secondly, that appropriate measures of relative wage can be inferred. In this paper we test both assumptions using two cohorts of UK university graduates. We find that controlling for endogeneity, the direct wage effect on job satisfaction doubles. Several variables relating to job match quality also impact on job satisfaction. Graduates who get good degrees report higher levels of job satisfaction, as do graduates who spend a significant amount of time in job search. Finally we show that future wage expectations and career aspirations have a significant effect on job satisfaction and provide better fit than some ad-hoc measures of relative wage.

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May 2002     Paper Number CEPDP0531

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