Taxes and Fringe Benefits Offered by Employers

The effect of premiums on the decision to participate in health insurance and other fringe benefits offered by the employer: evidence from a real-world experiment

“…4 A handful of previous work has explored some aspect of the provision of other insurance benefits but has produced little evidence about takeup decisions. For example Gentry and Peress (1994), find a significant effect of tax rates on employer decisions to offer vision and dental insurance and the estimates of Woodbury (1983) imply that health and life insurance benefits are highly substitutable with wages. These studies had only aggregate data available, however, and they had to rely on variation in tax rates, either by income-level (Woodbury, 1983) or by state (Gentry and Peress, 1994) to identify benefit price effects.…”

“…For example Gentry and Peress (1994), find a significant effect of tax rates on employer decisions to offer vision and dental insurance and the estimates of Woodbury (1983) imply that health and life insurance benefits are highly substitutable with wages. These studies had only aggregate data available, however, and they had to rely on variation in tax rates, either by income-level (Woodbury, 1983) or by state (Gentry and Peress, 1994) to identify benefit price effects. The price variation available in the data employed here is more clearly exogenous and allows us to estimate the effect of premium on the takeup of a variety of fringe benefits.…”

Fringe benefits and the demand for part-time workers

“…Previous studies have shown corporate status (Jensen and Gabel, 1992;Morrissey et al, 1994) and the value of the tax exemption (Leibowitz and Chernew, 1992;Gentry and Peress, 1994) increase the probability that a ® rm will provide health insurance and other fringe bene-® ts. There is little reason to expect that ® rm's corporate status will directly a ect the mix of part-time and full-time employees it hires.…”

Mandated health insurance and the low-wage labor market

“…The company will provide the extra insurance benefit and reduce monthly salaries by somewhere between $25 and $29.85, leaving both the firm and its workers better off even though the additional coverage is socially wasteful. Clearly, the private incentive to provide additional fringe benefits (and the size of the resulting social-welfare loss) increases with the marginal tax rate, as Long and Scott (1982), Woodbury (1983), and Gentry and Peress (1994) show. Given such tax distortions, the public-policy concern should be that firms are spending too much on nonwage benefits, rather than too little.…”