Wages or Fringes?
Some Evidence on Trade-offs and Sorting

The two key predictions of hedonic wage theory are that there is a trade-off between wages
and nonmonetary rewards and that the latter can be used as a sorting device by firms to
attract and retain the kind of employees they desire. Empirical analysis of these topics are
scarce as they require detailed data on all monetary as well as nonmonetary rewards, not
only for the job chosen but also for alternative offers. In this paper this data predicament is
solved by the use of the vignettes method to estimate individuals’ willingness to pay for fringe
benefits and job amenities. We find clear negative wage-fringe trade-offs, considerable
heterogeneity in willingness to pay for fringe benefits, and signs of sorting. The findings imply
that personnel economics models can be applied also to the analysis of nonmonetary
rewards.