Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 10-16: Wages or Fringes? Some Evidence on Trade-offs and Sorting

Tor Eriksson () and Nicolai Kristensen ()
Additional contact information
Tor Eriksson: Department of Economics, Aarhus School of Business, Postal: Department of Economics, Frichshuset Hermodsvej 22, 8230 Åbyhøj, Denmark
Nicolai Kristensen: Danish Institute for Governmental Research and IZA

Abstract: The two key predictions of hedonic wage theory are that there is a trade-o¤ between wages and nonmonetary rewards and that the latter can be used as a sorting device by …rms 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 o¤ers. In this paper this data predicament is solved by the use of the vignettes method to estimate individuals’ willingness to pay for fringe bene…ts and job amenities. We …nd clear negative wage-fringe trade-o¤s, con- siderable heterogeneity in willingness to pay for fringe bene…ts, and signs of sorting. The …ndings imply that personnel economics models can be applied also to the analysis of nonmonetary rewards.

Keywords: Fringe benefits; Nonmonetary rewards; Trade-off; Sorting; Heterogeneity

JEL-codes: J32; J33; M52

43 pages, November 1, 2010

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