Employer-provided benefits are a large and growing share of compensation costs. In this paper,
I consider three factors that can affect the value created by employer-sponsored benefits.
First, firms have a comparative advantage (for example, due to scale economies or tax
treatment) in purchasing relative to employees. This advantage can vary across firms
based on size and other differences in cost structure. Second, employees differ in
their valuations of benefits and it is costly for workers to match with firms that
offer the benefits they value. Finally, some benefits can reduce the marginal cost
to an employee of extra working time. I develop a simple model that integrates these
factors. I then generate empirical implications of the model and use data from the
National Longitudinal Survey of Youth to test these implications. I examine access
to employer-provided meals, child-care, dental insurance, and health insurance.
I also study how benefits are grouped together and differences between benefits
packages at for-profit, not-for-profit, and government employers. The empirical
analysis provides evidence consistent with all three factors in the model contributing
to firms' decisions about which benefits to offer.