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Wages or Fringes? Some Evidence on Trade-offs and Sorting

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  • Eriksson, Tor

    ()
    (Aarhus School of Business)

  • Kristensen, Nicolai

    ()
    (KORA - Danish Institute for Local and Regional Government Research)

Abstract

The two key predictions of hedonic wage theory are that there is a trade-off between wages and nonmonetary rewards and that the latter can be used as a sorting device by firms to attract and retain the kind of employees they desire. Empirical analysis of these topics are scarce as they require detailed data on all monetary as well as nonmonetary rewards, not only for the job chosen but also for alternative offers. In this paper this data predicament is solved by the use of the vignettes method to estimate individuals' willingness to pay for fringe benefits and job amenities. We find clear negative wage-fringe trade-offs, considerable heterogeneity in willingness to pay for fringe benefits, and signs of sorting. The findings imply that personnel economics models can be applied also to the analysis of nonmonetary rewards.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5309.

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Length: 39 pages
Date of creation: Nov 2010
Date of revision:
Publication status: forthcoming in Journal of Labor Economics, 2014.
Handle: RePEc:iza:izadps:dp5309

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Keywords: trade-off; nonmonetary rewards; fringe benefits; sorting; heterogeneity;

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  1. van Beek, Krijn W. H. & Koopmans, Carl C. & van Praag, Bernard M. S., 1997. "Shopping at the labour market: A real tale of fiction," European Economic Review, Elsevier, Elsevier, vol. 41(2), pages 295-317, February.
  2. Nabanita Datta Gupta & Leslie Stratton, 2010. "Examining the impact of alternative power measures on individual time use in American and Danish couple households," Review of Economics of the Household, Springer, Springer, vol. 8(3), pages 325-343, September.
  3. Ben-Akiva, M. & Bolduc, D. & Bradley, M., 1993. "Estimation of Travel Choice Models with Randomly Distributed Values of Time," Papers, Laval - Recherche en Energie 9303, Laval - Recherche en Energie.
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