Leadership and Job Satisfaction: Addressing Endogeneity With Panel Data From a Field Experiment

• Author: Jacob Ladenburg,Niels Westergård-Nielsen,Kenneth J. Meier,Seung-Ho An
• DOI: 10.1177/0734371X19839180
• Published date: 01 December 2020
• Date: 01 December 2020
• Published By: Sage Publications, Inc.

839180ROPXXX10.1177/0734371X19839180Review of Public Personnel AdministrationAn et al.
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Review of Public Personnel Administration
2020, Vol. 40(4) 589 –612
Leadership and Job
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DOI: 10.1177/0734371X19839180
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Endogeneity With Panel Data
From a Field Experiment
Seung-Ho An1 , Kenneth J. Meier2,3,4,
Jacob Ladenburg5, and Niels Westergård-Nielsen6
Abstract
The interaction between leaders and employees plays a key role in determining
organizational outcomes and performance. Although the human resources management
literature posits positive effects of leadership behaviors on employee job satisfaction,
the causal path between the two is unclear due to potential endogeneity issues inherent
in this relationship. To address the issue, we first provide theoretical explanations
about why and how transformational and transactional leadership behaviors would
enhance employee job satisfaction. Second, we test the relationship between leadership
behaviors and employee job satisfaction using panel data from a year-long randomized
field experiment that engaged leaders and employees from hundreds of public and
private organizations in Denmark. Primary findings suggest that although leadership
training does not have direct effects on changes in employee job satisfaction, leadership-
training-induced changes in leadership behaviors (transformational leadership and verbal
rewards) are positively related to changes in job satisfaction.
Keywords
employee job satisfaction, transformational leadership, transactional leadership, field
experiment, leadership training, panel data
1The University of Arizona, Tucson, USA
2American University, Washington DC, USA
3Cardiff University, Cardiff, UK
4Leiden University, Den Haag, The Netherlands
5The Rockwool Foundation Research Unit, Copenhagen, Denmark
6Copenhagen Business School, Frederiksberg, Denmark
Corresponding Author:
Seung-Ho An, Assistant Professor, School of Government and Public Policy, University of Arizona,
315 Social Sciences Bldg., P.O. Box 210027, Tucson, AZ 85721-0001, USA.
Email: seungho@protonmail.com

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Review of Public Personnel Administration 40(4)
Introduction
Except for those programs that apply incentives directly on the public, effective public
programs rely on high-quality human capital (Cho & Park, 2011), regardless of policy
area. One key to ensure high-quality human capital lies in employee satisfaction.
Substantial research finds that satisfied employees are more likely to be committed to
their jobs and organizations, which should, in turn, lead to higher individual and orga-
nizational productivity and, therefore, more effective public programs (e.g., Fernandez,
2008; Ostroff, 1992). High levels of employee job satisfaction can also reduce the
organizational costs associated with unexpected absenteeism, turnover intention, and
actual turnover (Chen, Ployhart, Thomas, Anderson, & Bliese, 2011; Green, 2010;
Jung, 2014b; N. P. Podsakoff, LePine, & LePine, 2007; Tett & Meyer, 1993).
Previous studies have suggested an extensive list of individual and organizational
factors that can influence levels of employee job satisfaction, such as interpersonal
relationships with colleagues and leaders, leadership, performance-based rewards,
recognition, feedback, consideration from leaders, autonomy, job security, goal ambi-
guity, personal traits, job characteristics, coworker wages, job changes, personal-orga-
nizational fit, organizational environments or culture, nonpecuniary job amenities, and
utility gaps in past and expected future jobs (for more details, see Böckerman,
Ilmakunnas, & Johansson, 2011; Boswell, Boudreau, & Tichy, 2005; Clark, Kristensen,
& Westergård-Nielsen 2009; Cornelissen, Heywood, & Jirjahn, 2011; Korte & Wynne,
1996; Kristensen & Johansson, 2008; Lévy-Garboua, Montmarquette, & Simonnet,
2007; Meterera, Hemsworth, Baregheh, & Garcia-Rivera, 2018; Rainey, 2003). The
role of leaders can be considered as one of the most important determinants of job
satisfaction not only because leaders can affect most of the aforementioned variables
(except for personal traits) but also because positive interactions between leaders and
employees can directly enhance job satisfaction (Madlock, 2008, p. 65). The linkage
of leadership to job satisfaction is consistent with previous literature that contends that
effective leadership is one of the most important characteristics commonly found in
successful organizations (Bass, Avolio, Jung, & Berson, 2003).
The purpose of this article is to investigate how leadership behaviors can affect
employee job satisfaction. According to the most recent meta-analysis on job satisfac-
tion correlates by Cantarelli, Belardinelli, and Belle (2016), the relationship between
leadership and job satisfaction is one of the most studied topics in public management
research.1 Numerous studies find a positive relationship between leadership and job
satisfaction (for more details, see Cantarelli et al., 2016; Judge & Piccolo, 2004; P. M.
Podsakoff, Bommer, Podsakoff, & MacKenzie, 2006). A common challenge that has
often been lodged, but largely ignored in this line of research, is the failure to account
for potential endogeneity issues. Because the linkage between leadership and job sat-
isfaction is so central to theories of leadership, motivation, performance, and organiza-
tions, sorting out such issues is a major theoretical challenge. To address this concern,
our analysis uses panel data from a year-long randomized field experiment that
engaged leaders and their followers in public and private organizations in Denmark.2

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591
We also use measures of leadership as observed by employees rather than relying on
leaders’ self-evaluations that are often overrated (Podsakoff & Organ, 1986).
After a review of the literature on leadership and job satisfaction and a discussion
concerning how leadership could affect job satisfaction, we address the potential cau-
sality and endogeneity issues on this topic. We outline theoretical expectations and
hypotheses linking leadership behavior and perceptions of leadership behaviors (by
leaders and employees) to employee job satisfaction.3 The study uses panel data from
a large research project that experimentally induces changes in leadership and links
those changes to changes in employee job satisfaction. Finally, we discuss the implica-
tions of our research for both the literature on leadership and job satisfaction and also
the practice of management.
Leadership
Although the literature on leadership is extensive and leaders can adopt myriad leader-
ship styles, recent work has focused on the concepts of transactional and transforma-
tional leadership. Transactional leadership has roots in the early 20th century when
studies on human motivation started to focus on incentives in organizations. Frederick
Taylor’s (1911) theory of scientific management held that well-designed incentive
systems in organizations can motivate employees and enhance productivity of indi-
viduals and the organization. The focus on incentives generated an extensive body of
literature that examined not just the monetary incentives advocated by Taylor but also
the use of normative appeals, the solidary and social benefits of organizational mem-
bership, and other factors (Argyris, 1972; McGregor, 1960; Roethlisberger & Dickson,
1939). Leadership was to focus on creating systems of incentives that would induce
organizational members to make contributions to the organization and in the process
blend their personal goals with the goals of the organization (Barnard, 1938; Simon,
1947). Although there were many different approaches to incentives-based leadership,
Burns (1978) essentially grouped them as transactional leadership whereby leaders
offer verbal or material rewards (or punishments) in exchange for good (or bad) per-
formance. Transactional leadership was to serve as the base for Burns’s advocacy of
transformational leadership.
Transformational leadership goes beyond the notion of economic and social
exchanges (e.g., rewards or punishments) between leaders and followers (Bass et al.,
2003) and focuses on inspiring, stimulating, and energizing employees to achieve
challenging goals or visions beyond their capacity (Bass, 1985; Burns, 1978; Wright,
Moynihan, & Pandey, 2012, p. 207). In seeking to tap into higher level psychological
and social needs, transformational leadership tries to convince employees to adopt
organizational goals as their own. In the process, such leadership encourages employ-
ees to put extra effort into working toward higher level goals within the organization
(Conger & Kanungo, 1987).
Although Burns (1978) argues transformational leaders are distinct from transac-
tional leaders, Bass (1985) claims they are not orthogonal to each other in that a leader
can have both transformational and transactional leadership styles. Contemporary

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Review of Public Personnel Administration 40(4)
literature agrees with Bass’s notion that the two leadership styles are not separate; in
fact, transformational leadership can augment transactional leadership. Leaders, for
example, can set constructive, but challenging, goals and then give certain types of
rewards to employees upon the achievements of these goals (Locke, 1999;...