Fringe Benefit Distribution in Britain
| Published date | 01 July 1985 |
| DOI | http://doi.org/10.1111/j.1467-8543.1985.tb00193.x |
| Date | 01 July 1985 |
British Journal
of
Industrial Relations
23:2
July 1985 0007-1080
$3.00
Fringe Benefit Distribution in Britain
Francis Green, George Hadjimatheou and Robin
Smail*
INTRODUCTION AND STY LISED FACTS
Fringe benefits continue to grow more significant as a form of reward for
labour in Britain.
In
the manufacturing industries they steadily rose, as a
proportion
of
average pre-tax total remuneration, from 11.1 per cent in 1964
to
19.4 per cent in 1981.
’
Similar rises took place
in
other sectors. As fringe
benefitsclimbin bothextent and value, a
systematicstudyiswarranted,
which
will analyse their role and their impact
on
the economy. Their importance for
labour economics is perhaps obvious: they affect, for example, the degree
of
labour mobility, the measurement
of
income distribution and
so
on.
They
have also come to have increasing effects outside the labour market
-
thus
the expansion of pension funds have gradually transformed the financial
markets, and, more recently, the growth of company cars has structured the
motor industry, while the rise of company financed private medicine has
inevitable effects
on
the National Health Service.
In
this paper our emphasis is solely
on
explaining the
distribution
of fringe
benefits, and we begin by illustrating their high degree of dispersion. This
can be done
in
a number
of
ways, for we find that as a proportion of money
income, fringe benefits vary across industries, occupational and income
groups, and company size.
The Department of Employment Labour Costs Surveys’ reveal that the
quantitative importance
of
fringe benefits varies considerably across indus-
tries. Those with well developed internal labour markets tend
on
average to
have high fringe benefits. Such industries are usually characterised by high
wages, low labour turnover, and a unionised labour force. State monopolies
as well as industries with high industrial concentration fall in this category.
Examples are the Coal and Petroleum Products, Mining and Quarrying,
Gas, Electricity and Water, Chemical and Allied Industries.
On
the other
hand industries with low wages, high labour turnover and dominated by a
large number
of
small establishments with frequent ‘entries’ and ‘exits’ tend
to
be associated with low fringe benefits. The most obvious examples in this
category are Clothing and Footwear and Construction.
Within each industry non-manual workers’ fringe benefits are substanti-
*
F.
Green and G. Hadjimatheou are Principal Lecturers
in
Economics and Econometrics,
respectively Kingston Polytechnic;
R.
Smail is a Research Officer at the Low Pay Unit.
262
ally greater in proportion to income than those of manuals. This is but an
example
of
a more general tendency for higher fringe benefits to be
associated with higher occupational status. For example, the 1976 General
Household Survey shows that about three-quarters
of
professional workers
were in pension schemes compared to half of skilled manuals and only 22 per
cent
of
unskilled manuals.
The Labour Cost Surveys also show that certain fringe benefits vary across
company size. In the case of voluntary social welfare payments and
subsidised services, workers in large firms clearly fare better, although this is
not
so
for benefits in kind.
These observations suggest that fringe benefits are more unequally
distributed than money incomes, and indeed the evidence for this is also
overwhelming. In Townsend’s survey in 1969 (Townsend, 1979), the top
quintile in the household income distribution received, on average, fringe
benefits valued at
13.3
per cent
of
income, excluding holidays. The poorest
quintile received 2.6 per cent.
A
similar dispersion is documented for 197tL3
Furthermore, our analysis of the 1976 General Household Survey suggests
that the proportions
of
employees entitled
to
sick pay and belonging to
occupation pension schemes increase with income levels (see Green,
Hadjimatheou and Smail1984a).
The paper proceeds as follows. In Section 2 we present and discuss some
hypotheses as
to
who is likely
to
receive more fringe benefits and who less.
Our observations
so
far are sufficient to establish the fact that there is a great
deal of inequality in their distribution, both in absolute terms and in relation
to income. However, the various factors are not independent
-
non-manual
workers, for example, tend to receive higher incomes. Hence, in Section
3,
we disentangle the various influences using multiple regression analysis in
the light
of
our theoretical considerations. Section
4
provides our con-
clusions.
British
Journal
of
Industrial Relations
FRINGE BENEFITS
VERSUS
WAGES
The tax advantage
of
rewarding labour in the form of fringe benefits rather
than wages has long been recognised as an important consideration in
explaining their distribution. The tax gain increases with the marginal tax
rate, thus making them more worthwhile
to
higher income groups. A further
consideration
is
that some fringe items are luxuries,
so
that even where there
is
no
substantial tax gain (for example, company medical insurance) fringe
benefits may be positively correlated with income.
Another potential influence relates to the cost
of
providing fringe
benefits. In some cases firms can use economies
of
scale to provide them
cheaply. One example is when firms can spread the fixed costs of
implementing and running deferred compensation schemes and of man-
aging the necessary funds. To the extent that this is
so,
larger establishments
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