The labor market effects of non-wage compensations

Contrary to the argument that non-wage compensation is a tax on labor reduc ing employment, we find that employment may increase in response to an incr eased demand for benefits (a decreased cost of providing benefits or increa sed government-mandated benefit levels), under the assumption of strong cro ss-economies of scale. When there are strong cross-diseconomies of scale, e mployment and hours both decrease. The secular increase in employer-provide d insurance and the growth in U.S. employment may well reflect the role of cross-economies of scale, which seems to exist in larger firms with lower m arginal non-wage benefit costs. (C) 2000 Elsevier Science B.V. All rights r eserved. JEL classification: J30, J32; J38.