Comparing benefit costs for full- and part-time workers (EXCERPT), Monthly Labor Review Online, Mar. 1999

Comparing benefit costs for full- and part-time workers

Michael K. Lettau and Thomas C. Buchmueller

Employers’ costs for total benefits grew roughly 50 percent faster than employee wages over the 1980–96 period, according to the Bureau of Labor Statistics Employment Cost Index (ECI). By March 1996, nonwage compensation represented 28 percent of total compensation for U.S. private workers. Given these figures, it is not surprising that there is great interest among economists and other analysts in the role that benefits play in labor markets.

Simple labor market theory suggests that employers mainly are concerned about the level of total worker compensation (wages, salaries, and benefits), and that, apart from tax considerations, they consider the division between cash wages and other compensation of little economic consequence. However, this simple approach ignores potentially important differences between wages and benefits. It is commonly asserted that benefits represent quasi-fixed costs, meaning that they vary with the number of workers rather than with the number of hours worked.¹ To the extent that this is true, the structure of employee compensation packages may influence employers’ demand for full- and part-time workers, as well as their decisions on the use of overtime.

This excerpt is from an article published in the March 1999 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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Footnotes

1 See, for example, Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics (New York, HarperCollins, 1994), pp. 132–136.

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