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How Responsive are Quits to Benefits?

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Author Info

  • Harley Frazis

    ()
    (U.S. Bureau of Labor Statistics)

  • Mark A. Loewenstein

    ()
    (U.S. Bureau of Labor Statistics)

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    Abstract

    It has been argued that one of the functions of fringe benefits is to reduce turnover. However, due to a lack of data, the effect on quits of the marginal dollar of benefits relative to the marginal dollar of wages is an under-researched topic. This paper uses the benefit incidence data in the 1979 Cohort of the National Longitudinal Survey of Youth (NLSY79) and the cost information in the National Compensation Survey to impute benefit costs. The value of imputed benefits is then entered as an explanatory variable in a mobility equation that is estimated using turnover information in the NLSY. We find that the quit rate is much more responsive to fringe benefits than to wages; this is even more the case with total turnover. We also find that benefit costs are correlated with training provision. Due to the high correlation of the costs of individual benefits, it is not possible to disentangle the effects of separate benefits. An interesting feature of the model that we develop for interpreting the strong negative relationship between fringe benefits and turnover is that abstracting from heterogeneity, workers must at the margin place a higher valuation on a dollar of wages than a dollar of benefits since otherwise an employer could profit by switching compensation from wages to fringes. Worker heterogeneity modifies this result and reinforces any causal relationship between fringe benefits and turnover provided that more stable workers have a greater preference for compensation in the form of fringes.

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    File URL: http://www.bls.gov/ore/pdf/ec090040.pdf
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    Bibliographic Info

    Paper provided by U.S. Bureau of Labor Statistics in its series Working Papers with number 426.

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    Length: 51 pages
    Date of creation: Aug 2009
    Date of revision:
    Handle: RePEc:bls:wpaper:ec090040

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    Related research

    Keywords: Turnover; Fringe Benefits;

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    References

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    1. Dale-Olsen, Harald, 2006. "Wages, fringe benefits and worker turnover," Labour Economics, Elsevier, vol. 13(1), pages 87-105, February.
    2. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
    3. Mark C. Berger & Dan A. Black & Frank A. Scott, 2004. "Is There Job Lock? Evidence from the Pre-HIPAA Era," Southern Economic Journal, Southern Economic Association, vol. 70(4), pages 953-976, April.
    4. Daniel S. Hamermesh & Stephen A. Woodbury, 1990. "Taxes, Fringe Benefits and Faculty," NBER Working Papers 3455, National Bureau of Economic Research, Inc.
    5. Thomas C. Buchmueller & Robert G. Valletta, 1996. "The effects of employer-provided health insurance on worker mobility," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(3), pages 439-455, April.
    6. Madrian, Brigitte C, 1994. "Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 27-54, February.
    7. Frank A. Scott & Mark C. Berger & Dan A. Black, 1989. "Effects of the tax treatment of fringe benefits on labor market segmentation," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 42(2), pages 216-229, January.
    8. Richard A. Ippolito, 1991. "Encouraging long-term tenure: Wage tilt or pensions?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 44(3), pages 520-535, April.
    9. Olivia S. Mitchell, 1983. "Fringe benefits and the cost of changing jobs," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 37(1), pages 70-78, October.
    10. Olivia S. Mitchell, 1982. "Fringe Benefits and Labor Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 17(2), pages 286-298.
    11. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
    12. Alan L. Gustman & Thomas L. Steinmeier & Olivia Mitchell, 1994. "The role of pensions in the labor market: A survey of the literature," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(3), pages 417-438, April.
    13. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
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    Cited by:
    1. Daniel T. Winkler & W. Keener Hughen, 2012. "Fringe Benefits Compensation of Real Estate Agents and Brokers," International Real Estate Review, Asian Real Estate Society, vol. 15(3), pages 253-281.

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