Non-monetary rewards & compensating
differentials
• 1. What are non-monetary & non-wage rewards?
– MNCs
– Other jobs
• 2. Theory (Compensating differentials)
• 3. Empirical evidence
– Executive pay
– Teachers
1. Non-monetary & non-wage rewards
• Components of compensation in International
Business (MNCs) – senior managers
1.
2.
3.
4.
Base salary + performance component
Foreign service inducement
Allowances – housing, education, travel, security
Benefits – insurance & pensions – see Lazear
= Total remuneration
– Note: ‘Local’ circumstances
Local Issues
• Legal constraints
– Mandated benefits; Rewards limitations
– Tax law; Labor relations law
• Social custom
•
– Role of family & employer
– Role of government
Economic differences
1. Non-monetary & non-wage rewards
• Components of non-monetary compensation
for lower level jobs
– Flexibility of hours
– Security & risk of injury
– Conditions of work
– Training
• Preferences & tastes are heterogenous
2. Theory
• Two types of worker
– Worker A: strong preference for flexible hours
– Worker B: weak preference for flexible hours
• More generally
– Workers vary in their preference for non-monetary
or non-pecuniary factors
• E.g. teachers
• E.g. nurses
2. Theory
Wage
Indifference curves – worker A
Flexible hours
2. Theory
Wage
Indifference curves – worker B
Flexible hours
2. Theory
Worker A
Wage
(Pecuniary)
Wc
Worker B
C
S
WS
X
Y
Z
TC
TS
Flexible hours
(Non-pecuniary)
2. Theory
Worker A
Wage
(Pecuniary)
Worker B
Wc
C
S
WS
X
Y
Z
TC
TS
Flexible hours
(Non-pecuniary)
3. Empirical evidence: School teachers
•
For current teachers there are 2 key issues in teacher labour
supply:
(a) Retention of teachers;
(b) Distribution of teacher quality across school systems
•
Why do teachers exit teaching?
•
Policy debate: the relative role of pecuniary and non-pecuniary
factors
•
Shape the appropriate policy response
Pecuniary and Non-Pecuniary Factors
 Previous literature
Pecuniary:
• Relative wage in other professions (Murnane and Olsen,
1989; Dolton and Van der Klaauw, 1995,1999)
Non-Pecuniary:
• Maternity (Stinebrickner, 2002)
• Class size and workload (Mont & Rees, 1996)
Data Source
• Use MOHRI (Minimum Obligatory Human Resource
Information) for the Australian state of Queensland.
• Covers whole population of state school teachers (31,000)
• Quarterly individual level data for 2001 and 2002
• Detailed human resource information:
– Pay, allowances, contract type
– School information (school size, class size, performance)
– Personal characteristics (gender, ethnicity, disability, education, subject
specialisation)
Permanent Teaching Labour Force - Summary
Pecuniary :
Predicted Wage (log)
Own wage (log)
Locality Allowance
Males
Females
Stayed Moved Exited Stayed Moved
Exited
3.024 2.981
3.320 3.291
0.267 0.475
Non-pecuniary:
School size (log)
6.237
Average Class size (log) 2.200
High student Perform
0.283
Low student Perform
0.201
Remote
0.062
Rural
0.146
Part-time
0.054
Tenure yrs
16.091
Observations
7,566
2.987 2.769
3.282 3.255
0.188 0.213
2.768
3.240
0.285
2.750
3.229
0.086
5.941 6.270 6.171
2.215 2.155 2.321
0.230 0.251 0.285
0.275 0.267 0.196
0.143 0.065 0.072
0.191 0.149 0.147
0.149 0.253 0.204
10.716 10.670 11.765
411 1,176 19,114
5.991
2.307
0.249
0.249
0.110
0.181
0.289
8.906
978
6.208
2.288
0.276
0.211
0.081
0.159
0.376
8.300
3,269
Selected Estimates – MNL Logit, Marginal Effects
Males
Turnover
Mobility
(p-val)
Pecuniary:
Predicted Wage
0.021 (0.03) -0.025 (0.13)
Own Wage
-0.077 (0.00) -0.064 (0.01)
Locality Allowance -0.008 (0.08) 0.009 (0.03)
Non-Pecuniary:
Primary
-0.018 (0.03) 0.006 (0.62)
School Size
0.007 (0.13) -0.049 (0.00)
Average Class Size
-0.008 (0.11) 0.049 (0.00)
High Student Perform -0.003 (0.57) -0.010 (0.25)
Low Student Perform 0.014 (0.00) 0.015 (0.08)
Part-time
0.061(0.00)
0.121(0.00)
Remote School
0.009 (0.32) 0.053 (0.00)
Rural School
0.005 (0.41) 0.012 (0.21)
Females
Turnover
Mobility_
-0.003 (0.80) -0.088 (0.00)
-0.052 (0.00) -0.044 (0.01)
-0.041 (0.00) 0.016 (0.00)
-0.011 (0.01) 0.003 (0.70)
0.003 (0.22) -0.033 (0.00)
-0.003 (0.22) 0.031 (0.00)
0.000 (0.98) -0.006 (0.29)
0.003 (0.28) 0.024 (0.00)
0.027 (0.00)
0.053 (0.00)
0.023 (0.00)
0.029 (0.00)
0.015 (0.00)
0.012 (0.06)
Additional Controls: Primary, Part-time, Ethnicity, Disability, Subject specialisation, Education Quals, %
Female staff, % degree staff, Number private schools in district, local unemployment rate.
Summary of evidence
 Pecuniary effects
 Higher wages deter turnover.
 Locality allowances deter turnover and encourage mobility especially
for female teachers
 Locality allowances retain male teachers in rural/remote locations
 Non-pecuniary effects
 Primary schools have lower turnover
 Difficulty keeping less experienced female teachers in rural/remote
schools.
 Mobility away from small schools/larger classes
 Conclusion
 Pecuniary and non-pecuniary influences on turnover and mobility.
 Locality allowances - encouraged some movement to and reduced
mobility away from rural/remote schools