they would sacrifice in lower wages or in longer hours of work (at no extra pay) to secure various fringe benefits, including better pen- sions and an air-conditioned working place. Dunn's results showed that most workers were willing to lower their wages or to increase their work effort to acquire the fringe benefits they desired. As another, and final, piece of evidence, it can be pointed out that almost all firms provide their workers with nonwage benefits, witlh some firms spending considerable amounts on these benefits. Unless it is argued that these benefits are supplied from a motive of charity, it must be that these firms expect a lower wage than they would otherwise have to pay as an incentive for them to provide these nonwage benefits.Given that firms supply nonwage benefits to their workers in return for lower wages, the following equation describes how the firm's long-run expenditures on nonwage benefits will be deter- mined:That is, the differential between (marginal) productivity and the- wages of each worker will, in the long run, be used to pay for his nonwage benefits. This equation allows us to categorize the possible responses an employer may make to offset a higher minimum wage:
1.
Reduce money wages. Although minimum wages restrain hourly wages from being reduced below a certain level, there may be other forms of wages that can be reduced. These include bonus pay and commissions not directly tied to the hours of work. In addition, wage raises can be delayed in anticipation of a minimum-wage in- crease.
2.
Reduce nonwage expenditures. Employers can reduce their ex- penditures on fringe benefits and on the various amenities with which they have been providing workers. From a societal point of view, a particularly important nonwage expenditure that may be reduced finances worker training, a cutback that will affect the future income and productivity of our work force.
3.
Increase productivity. In the conventional models of minimum wages, the main way firms react to a minimum-wage increase is by raising productivity through cutting back on the work force. Just as, by the law of diminishing returns, more workers reduce the pro- ductivity of each worker, fewer workers will raise the productivity of each worker. This offset will not be discussed in this section, since it is incorporated into the demand schedule for labor. Another way to increase each worker's productivity is to require him to apply
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Publication Information: Book Title: Minimum Wages, Fringe Benefits and Working Conditions. Contributors: Walter Wessels - author, Hermann Zapf - author, Marcia Brubeck - editor, Claire Theune - editor. Publisher: American Enterprise Institute. Place of Publication: Washington, DC. Publication Year: 1980. Page Number: 5.
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