Association for Public Policy Analysis & Management

Income inequality is an important economic and social policy problem. Access to restricted-use data available through Federal Statistical Research Centers (RDCs) improves researchers’ abilities to measure inequality in the labor market and to identify ways in which to expand the protective effects of employment. This study uses restricted data from the Medical Expenditures Panel Survey and detailed occupation-level data from the Integrated Public Use Microdata Series from 2007 through 2013 to examine how occupational differences in wages and fringe benefits contribute to income inequality in the labor market.

Although the microeconomic theory of compensating differentials suggests that workers pay for benefits through lower wages, preliminary results suggest that occupational differences in fringe benefits do not explain occupational differences in pay. Instead, the results suggest that wage and benefits travel together, and income inequality would be greater if occupational differences in fringe benefits were taken into account. Importantly, these findings are not observed when using broad occupational categories available in the MEPS public-use data.

The primary purpose of this paper is to help policy analysts and policymakers identify where to target strategies for reducing income inequality and increasing employment protections. Additionally, this paper should spur discussion on the potential impacts of policies such as state increases in the minimum wage and increases in the availability of public and private health insurance coverage under the ACA on wages, employee benefits, and income inequality in the labor market. The sensitivity of workers’ wages and benefits to average levels of compensation in their occupations suggest that minimum wage increases might limit the protective effects of employment through reductions in benefits. On the other hand, increases in the minimum wage might lessen the economic burden on households to pay for benefits, such as health insurance coverage through the Marketplace, when they are unavailable or too expensive to obtain from an employer.