FRINGE BENEFITS AND JOB SATISFACTION UNIVERSITY OF WISCONSIN – MILWAUKEE. A RESEARCH PROJECT MATERIAL ON ECONOMICS
ABSTRACT
Fringe benefits stand as an important part of compensation but confirming their role in determining job satisfaction has been mixed at best. The theory suggesting this role is ambiguous. Fringe benefits represent a desirable form of compensation but might result in decreased earnings and reduced job mobility. Using a pooled cross-section of five NLSY waves, fringe benefits are established as significant positive determinants of job satisfaction, even after controlling for individual fixed effects and testing for the endogeneity of fringe benefits.
CHAPTER ONE
Introduction
Establishing the determinants of job satisfaction remains at the forefront of empirical testing in using measures of on-the-job utility. At first consideration, desirable job attributes such as fringe benefits should increase job satisfaction. However, the past evidence is mixed at best and contradictory at worst. While a valuable form of compensation, employer provided benefits may lower earnings or reduce job mobility. Thus, the theoretical impact of fringe benefits on job satisfaction is not immediately clear.
Fringe benefits can impact job satisfaction in several ways. First, fringe benefits stand as an important component of worker compensation. The National Compensation Survey conducted by the Bureau of Labor Statistics estimated that benefits made up 30% of total compensation for all civilian workers in 20061. Some benefits such as Social Security and Medicare are legally required and make up roughly 27% of all benefit compensation. The remaining 73% of benefit compensation is comprised mostly of paid leave, insurance plans and retirement and savings plans. These benefits are often not subject to taxation and are therefore cheaper to gain through an employer than through the market (Alpert, 1987). Consequently, cheaper benefits should increase worker job satisfaction.
Second, fringe benefits can act as substitutes for wages. Baughman, DiNardi and Holtz-Eakin (2003) examined employer survey data and found that employers decreased wages once several benefits had been offered to employees after a few years. Woodbury (1983) found that workers also view benefits and wages as substitutes, willing to give up wages in exchange for more benefits. This substitution can increase job satisfaction if the worker’s marginal income tax rate increases. The less taxed fringe benefits can be substituted for wages and increase job satisfaction by saving the worker from increased tax burden.
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FRINGE BENEFITS AND JOB SATISFACTION UNIVERSITY OF WISCONSIN – MILWAUKEE. A RESEARCH PROJECT MATERIAL ON ECONOMICS