Working Paper: NBER ID: w31463
Authors: Paige Ouimet; Geoffrey Tate
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.
Keywords: Nonwage benefits; Labor markets; Compensation inequality; Turnover dynamics
JEL Codes: G32; J01; J23; J32; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Presence of high-wage workers in unrelated divisions of a firm (J39) | Health benefits offered to colleagues in other divisions (J32) |
| One-standard deviation increase in average health benefits provided by peer firms (I14) | Increase in a firm's health benefits (J32) |
| Higher benefits (J32) | Lower turnover rates among low-wage workers (J63) |
| High benefits (J32) | Attract and retain more high-wage workers while reducing reliance on low-wage workers (J39) |