Firm Wages and Amenities

Firm wage policies explain over twenty percent of the variation in earnings and earnings inequality across firms and workers. Labor economists argue that this wage differential is due to differences in non-wage amenities across firms as firms compensate for low non-wage amenities with higher wages. Existing methods do not allow researchers to estimate the value of amenities that are not “compensated for” by lower wages. To estimate the total value of non-wage amenities provided by firms, the researchers have conducted a large-scale worker survey that asked workers to rank hypothetical job offers provided by specific firms. Workers’ choices reveal the total value of non-wage amenities provided by each firm. The researchers will link these values to the wage and wage premia offered by firms and use the resulting data to estimate the relationship between wages and amenities. If high wage firms provide more non-wage amenities than low-wage firms, existing estimates of inequality (based only on wages) may understate the overall level of inequality in the labor market; the reverse may also be true. The results of this research will provide guidance on policies to reduce labor market inequalities as well as help to establish the US as a global leader in reducing wage inequalities across firms. In so doing, the research results could also help improve the efficiency of labor markets. This project examines whether heterogeneity in firms’ provision of non-wage amenities dampens or magnifies total labor compensation inequality, using data from a large-scale survey of employees in Germany. The survey asked workers to rank offers from specific firms with researcher-provided wage offers. One set of questions focused on offers from researcher-specified firms while another set of questions focused on firms the worker said they would consider. Workers were also asked to re-rank offers under the assumption firms did not vary in commuting or in the value of future wage growth. The survey results allow the PIs to apply standard tools from the industrial organization literature to estimate the value of non-wage amenities provided by firms. The PIs link these values to inked employer-employee data of those firms to estimate the relationship between non-wage amenities and the wage premia offered by such firms. The researchers will then examine the extent to what measures of inequality based only on wage premia understate or overstate inequality in the total value of compensation provided by firms. The results of this research will provide guidance on policies to reduce labor market inequalities as well as help to establish the US as a global leader in reducing wage inequalities across firms. In addition, the results could also improve the functioning of the labor market, hence increase economic growth. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.