Wage Supplements Through Collective Agreement or Statutory Requirement?

Abstract

Wage supplements in the form of private fringe benefits and statutory contributions to social welfare account for around 25 per cent of the typical firm's total labour costs throughout OECD countries. Yet the relative emphasis on private and statutory payments differs from country to country. For example, the ratio of statutory contributions to private fringes (excluding holiday payments) was 5 0 in the FRG compared to 0.9 in the USA in 1981. This paper critically assesses the economic arguments for and against both forms of non-wage payment. On the private side, the discussion concentrates on human capital anti union median voter explanations for private fringe payments. Attention is also given to the implications of favourable corporate and individual tax concessions with respect both to the demand for private fringes and to the evaluation of their human capital effects. On the statutory side, social security contributions are discussed in relation to general social welfare, government employment policy and employer-union relations. As part of the general assessment, it is argued that governments should provide a Fiscal framework in this area which is designed to stimulate more effective individual and firm-level choice between equivalent forms of private and statutory supplementary compensation.