Trade- Off s: Some Data Problems

Fringe benefits are a growing component of total Compensation, and their growth presents a number of challenges to economists on both the scientific and policymaking level. For example, when the government passes legislation requiring that pensions be made more generous or more widely available, it is natural to ask just who will pay the cost. Economic theory, as we will show, is quite clear on this point. It suggests that when pensions increase wages will decrease, other things equal, thus implying that it is workers themselves who will pay the cost of pension reform legislation. The view that wages and pensions are negatively related (if other things are held constant) is not widely held among noneconomists, however. Casual observation, in fact, yields quite the opposite view. The highest-wage workers receive the best pensions, and high-wage firms are the very ones with the most generous pensions. Even sophisticated studies that attempt to control for the “other things ” in-fluencing total compensation sometimes estimate that wages and pen-sions are positively related (Blinder, Gordon, and Wise 1979). To take another example, federal/private sector wage comparability studies have historically ignored fringe benefits. If increases in earnings and increases in fringe benefits are roughly proportional within each sector, then changes in earnings may serve as an adequate index (given the cost of acquiring fringe benefit data) for changes in total compensa-tion. However, if, as economists suspect, earnings and fringe benefits ar