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Pensions and Wage Premia

  • Edward Montgomery
  • Kathryn Shaw

In this paper we use that the theory of compensating differentials to identify sources of heterogeneity in firms' costs of providing fringe benefits and hence heterogeneity in the magnitude of the compensating differential. We estimate the relationship between pensions and wages controlling for variations in the size of the compensating differential related to firm size or the presence of a union. Both firm size and unionism are commonly associated with the payment of wage premia and/or the presence of market power where the costs of fringe benefits to the firm may be less. Our results are consistent with these a priori expectations and suggest that the magnitude of the compensating differential is significantly higher in nonunion and in small firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3985.

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Date of creation: Feb 1992
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Publication status: published as Montgomery, Edward and Kathryn Shaw. "Pensions And Wage Premia," Economic Inquiry, 1997, v35(3,Jul), 510-522.
Handle: RePEc:nbr:nberwo:3985
Note: LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Biddle, Jeff E & Zarkin, Gary A, 1988. "Worker Preferences and Market Compensation for Job Risk," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 660-67, November.
  2. Akerlof, George A & Katz, Lawrence F, 1989. "Workers' Trust Funds and the Logic of Wage Profiles," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 525-36, August.
  3. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  4. Steven G. Allen & Robert L. Clark, 1985. "Unions, Pension Wealth, and Age-Compensation Profiles," NBER Working Papers 1677, National Bureau of Economic Research, Inc.
  5. Jeremy I. Bulow & Wayne Landsman, 1985. "The Relationship between Wages and Benefits," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 379-398 National Bureau of Economic Research, Inc.
  6. Carmichael, H Lorne, 1989. "Self-Enforcing Contracts, Shirking, and Life Cycle Incentives," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 65-83, Fall.
  7. Dickens, William T & Lang, Kevin, 1988. "Labor Market Segmentation and the Union Wage Premium," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 527-30, August.
  8. Steven G. Allen & Robert L. Clark & Ann A. McDermed, 1991. "Pensions, Bonding, and Lifetime Jobs," NBER Working Papers 3688, National Bureau of Economic Research, Inc.
  9. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
  10. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  11. Duncan, Greg J & Stafford, Frank P, 1980. "Do Union Members Receive Compensating Wage Differentials?," American Economic Review, American Economic Association, vol. 70(3), pages 355-71, June.
  12. Edward B. Montgomery & Kathryn Shaw & Mary Ellen Benedict, 1990. "Pensions and Wages: An Hedonic Price Theory Approach," NBER Working Papers 3458, National Bureau of Economic Research, Inc.
  13. 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.
  14. Schiller, Bradley R & Weiss, Randall D, 1980. "Pensions and Wages: A Test for Equalizing Differences," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 529-38, November.
  15. Robert S. Smith & Ronald G. Ehrenberg, 1981. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Working Papers 0827, National Bureau of Economic Research, Inc.
  16. Pearce, James E, 1990. "Tenure, Unions, and the Relationship between Employer Size and Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 251-69, April.
  17. Oi, Walter Y, 1983. "Heterogeneous Firms and the Organization of Production," Economic Inquiry, Western Economic Association International, vol. 21(2), pages 147-71, April.
  18. Ronald G. Ehrenberg, 1980. "Retirement system characteristics and compensating wage differentials in the public sector," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(4), pages 470-483, July.
  19. Even, William E & Macpherson, David A, 1990. "The Gender Gap in Pensions and Wages," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 259-65, May.
  20. Laurence J. Kotlikoff & David A. Wise, 1984. "Labor Compensation and the Structure of Private Pension Plans: Evidence for Contractual Versus Spot Labor Markets," NBER Working Papers 1290, National Bureau of Economic Research, Inc.
  21. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  22. Dorsey, Stuart, 1987. "The Economic Functions of Private Pensions: An Empirical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S171-89, October.
  23. Joni Hersch & W. Kip Viscusi, 1990. "Cigarette Smoking, Seatbelt Use, and Differences in Wage-Risk Tradeoffs," Journal of Human Resources, University of Wisconsin Press, vol. 25(2), pages 202-227.
  24. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  25. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, October.
  26. Alan L. Gustman & Thomas L. Steinmeier, 1987. "Pensions, Efficiency Wages, and Job Mobility," NBER Working Papers 2426, National Bureau of Economic Research, Inc.
  27. Smith, Robert Stewart, 1981. "Compensating Differentials for Pensions and Underfunding in the Public Sector," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 463-68, August.
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