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Salary or Benefits?

Paul Oyer

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

December 2005

NBER Working Paper No. w11817

Employer-provided benefits are a large and growing share of compensation costs. In this paper, I consider three factors that can affect the value created by employer-sponsored benefits. First, firms have a comparative advantage (for example, due to scale economies or tax treatment) in purchasing relative to employees. This advantage can vary across firms based on size and other differences in cost structure. Second, employees differ in their valuations of benefits and it is costly for workers to match with firms that offer the benefits they value. Finally, some benefits can reduce the marginal cost to an employee of extra working time. I develop a simple model that integrates these factors. I then generate empirical implications of the model and use data from the National Longitudinal Survey of Youth to test these implications. I examine access to employer-provided meals, child-care, dental insurance, and health insurance. I also study how benefits are grouped together and differences between benefits packages at for-profit, not-for-profit, and government employers. The empirical analysis provides evidence consistent with all three factors in the model contributing to firms' decisions about which benefits to offer.

Number of Pages in PDF File: 35

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Date posted: February 19, 2006  

Suggested Citation

Oyer, Paul, Salary or Benefits? (December 2005). NBER Working Paper No. w11817. Available at SSRN: http://ssrn.com/abstract=875693

Contact Information

Paul Oyer (Contact Author)
Stanford Graduate School of Business ( email )
655 Knight Way
Stanford, CA 94305-5015
United States
650-736-1047 (Phone)
650-725-0468 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  27
Citations:  12

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