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The purpose of this paper is to test empirically whether there exist spillover externalities in job satisfaction, i.e., to test whether individual-level job satisfaction is affected by the aggregate job satisfaction level in a certain labor market environment.

The authors use a linear-in-means model of social interactions in the empirical analysis. The authors develop an original strategy, motivated by the hierarchical models of social processes, to identify the parameters of interest. BHPS and WERS datasets are used to perform the estimations both at the establishment and local labor market levels.

The authors find that one standard deviation increase in aggregate job satisfaction leads to a 0.42 standard deviation increase in individual-level job satisfaction at the workplace level and a 0.15 standard deviation increase in individual-level job satisfaction at the local labor market level. In other words, the authors report that statistically significant job satisfaction spillovers exist both at the establishment level and local labor market level; and, the former being approximately three times larger than the latter.

First, this is the first paper in the literature estimating spillover effects in job satisfaction. Second, the authors show that the degree of these spillover externalities may change at different aggregation levels. Finally, motivated by the hierarchical models of social processes, the author develop an original econometric identification strategy.