The impact of fringe benefits on payment profiles

Several explanations are proposed for the observed domination of wages in the wage-fringe benefit mix. Domination occurs if fringe benefits are taxed at a higher level or marginal rate, or if trading fringe benefits incurs transaction costs. A central result shows wage domination, even in the absence of these effects, due to intertemporal effects of durable fringe benefits, which can be consumed in periods of disagreement. This enables workers to extract a higher bargaining surplus, and leads the firm to resist fringe benefit payments. Finally, the paper gives a novel reason for tenure effects in both wages and fringe benefits.