A NOTE ON THE SUBSTITUTION BETWEEN WAGE AND NONWAGE BENEFITS IN SPOT LABOR-MARKETS

Recent empirical work suggests that spot labour market workers have a strong preference towards wages over fringe benefits. This paper provi des a theoretical framework based on this finding. After a discussion of the utility function and equilibirum, the paper proceeds to a compa rative statics analysis. An important result is that workers spend all extra compensation on wages only. This is shown to be true in the cas e that wage benefits are taxed. Furthermore, proportional taxes have n o effect for workers' choice between wage and non-wage benefits.