Fringe Benefits in Employee Compensation

This Note uses data on employees' fringe benefits to study the tradeoff between money wages and fringe benefits, holding worker productivity constant. The data were collected as part of the RAND Health Insurance Study. The results show significant differences by sex in the receipt of fringe benefits. However, regression analysis indicates that lack of data on employee-specific taxable benefits does not greatly bias either rate of return on schooling estimates or earnings comparisons between men and women. Accounting for marginal tax rates had a greater effect on rates of return to schooling than did fringe benefits. Further, the tax and benefit effects tend to offset each other. Hedonic wage equations showed that employees earn compensating differentials when benefits are not provided on the job. However, among those receiving fringe benefits, wages were positively correlated with benefits.