Firms with Benefits? Nonwage Compensation and Implications for Firms and Labor Markets

Paige Ouimet and Geoffrey Tate

No 31463, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using administrative data on health insurance, retirement, and leave benefits, we find within-firm variation accounts for a dramatically lower percentage of total variation in benefits than in wages. We also document sharply higher between-firm variation in nonwage benefits than in wages. We argue that this pattern can be a consequence of nondiscrimination regulations, fairness concerns, and the high administrative burden of managing too many or complex plans. Consistent with this mechanism, we show that the presence of high-wage workers in unrelated divisions of a firm as well as workers hired in high-benefit local labor markets positively predicts their colleagues’ benefits, controlling for occupation, wages, state, and industry. We find that the resulting high benefits reduce turnover, particularly among low-wage workers, for whom the benefits comprise a larger percentage of total compensation. Moreover, firms with more generous benefits attract and retain more high-wage workers, but also reduce their reliance on low-wage workers more than low-benefit peers. Our results suggest that benefits disproportionately matter for worker-firm matching and, hence, compensation inequality.

JEL-codes: G32 J01 J23 J32 J63 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-bec, nep-hea and nep-lma
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