Taxes, Fringe Benefits and Faculty

Daniel Hamermesh and Stephen Woodbury

No 3455, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The growth of employee benefits in academe has closely paralleled their economy-wide growth. This study estimates a complete system describing the demand for benefits and wages using panel data on nearly 1500 institutions of higher learning. The demand for benefits is quite responsive both to changes in real income and to variations in the tax price of benefits. These conclusions are robust with respect to varying definitions of the sample aid of the tax price. They are not altered by estimates that account for unmeasured individual effects on demand. Simulations using the estimates suggest that the Tax Reform Act of 1986 sharply reduced the demand for benefits. Extrapolating the impact to the entire economy suggests that the annual flow of compensation shifted away from benefits by at least $9 billion.

Date: 1990-09
Note: LS PE
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Published as Review of Economic and Statistics, Vol.74, No.2, pp.287-296, May 1992.
Published as Woodbury, Stephen A & Hamermesh, Daniel S, 1992. "Taxes, Fringe Benefits and Faculty," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 287-96, May.

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