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A Note on Wage Regressions and Benefits

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  • Tommaso Tempesti

    (University of Massachusetts Lowell)

Abstract

In economics it is common to study how a certain policy affects the compensation that firms are willing to pay to their workers. To this end, many papers use a regression with the log of wage as dependent variable. However, wages are only a component of compensation as non-legally required benefits now amount to more than 23% of compensation in the United States. I show that, because of the presence of benefits, the effect of a policy on wages may be different from the effect of that policy on compensation. If so, the wage regression, even if it correctly estimates the effect of a policy on wages, may not correctly estimate the effect of the policy on compensation. I use a simple model of utility maximization to derive an expression for the bias of the wage regressions. I then use that expression to quantify the bias as a function of the model's parameter values. I conclude suggesting possible avenues to address this issue in future empirical work.

Suggested Citation

  • Tommaso Tempesti, 2016. "A Note on Wage Regressions and Benefits," Economics Bulletin, AccessEcon, vol. 36(3), pages 1580-1594.
    • Handle: RePEc:ebl:ecbull:eb-16-00561
    as

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    References listed on IDEAS

    as
    1. Tommaso Tempesti, 2016. "Offshoring and the Skill-premium: Evidence from Individual Workers’ Data," The World Economy, Wiley Blackwell, vol. 39(10), pages 1628-1652, October.
    2. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
    3. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
    4. Peter H. Egger & Sergey Nigai & Nora M. Strecker, 2019. "The Taxing Deed of Globalization," American Economic Review, American Economic Association, vol. 109(2), pages 353-390, February.
    5. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    7. Kate Bundorf, M., 2002. "Employee demand for health insurance and employer health plan choices," Journal of Health Economics, Elsevier, vol. 21(1), pages 65-88, January.
    8. Tempesti, Tommaso, 2015. "Fringe Benefits and Import Competition," MPRA Paper 69842, University Library of Munich, Germany.
    9. Katharine G. Abraham & James R. Spletzer & Michael Harper, 2010. "Labor in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number abra08-1.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fringe Benefits; Compensation; Bias of Log Wage Regressions; Policy Evaluation.;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • F1 - International Economics - - Trade

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