The Economics of Employee Benefits

Abstract:     
If health insurance and other benefit costs really do harm U.S. businesses, why do so many firms offer these benefits? Why not pay workers a higher salary and let them buy insurance on their own? Do benefit costs, in fact, reduce the profits of U.S. firms?

This chapter is an introductory analysis of the economics of employee benefits, appropriate for undergraduates and graduate students in economics, business, public policy, law, and human resource management. The chapter begins with a discussion of the role of differences in costs of providing benefits versus cash compensation, the use of benefits as a recruiting tool, and the role of tax incentives. The second part of the chapter analyzes how employee wages and firm profits are affected when benefit costs increase.

Keywords: Employee benefits, health insurance, pensions, human resource management

JEL Classification: J3, J32, M5, M52, J18

Accepted Paper Series