During COVID-19, workers were less responsive to monetary incentives when amenities comprised more of total compensation

Non-wage amenities—such as workplace safety, having meaningful work, and working in a supportive environment—influence labor market dynamics significantly, shaping job preferences and wage structures. But estimating the value of such amenities has proven challenging.

In a new study, researchers have developed an approach to measurement that they applied to workers' valuations of safety in the workplace during COVID-19. They found that workers were less responsive to monetary incentives when amenities constituted a larger share of total compensation.

The study, by researchers at Carnegie Mellon University and Bocconi University, is published as a discussion paper by the Centre for Economic Performance.

"Non-wage amenities often compel workers to make trade-offs between monetary and non-monetary compensation," says Felix Koenig, assistant professor of economics at Carnegie Mellon's Heinz College, who coauthored the study.

"Our new method expands the set of tools available to estimate non-wage amenities. These make up a large and growing part of workers' compensation, as signaled by the prominent role these amenities play in discussions around the changing nature of work, from the gig economy to work-from-home and the Great Resignation."

In their study, researchers developed a revealed-preference method to estimate the value of non-wage workplace amenities by analyzing how workers responded to budget discontinuities (e.g., earning limits for benefit eligibility). The approach is based on the idea that workers are less responsive to financial incentives when valuable non-wage amenities are present.

Researchers analyzed data from Homebase, a private company used by small businesses to track the hours and earnings of their workers, most of whom were hourly and frontline employees (e.g., those in restaurant, food and beverage, retail, health and beauty, and health care industries), the type of worker who faced decisions about whether to reduce their hours to diminish the risk of contracting COVID-19.

The study applied the new method to the value workers attached to safe workplaces. Researchers analyzed U.S. Federal Pandemic Unemployment Compensation (FPUC), a benefit introduced in March 2020, which provided workers with added $600 weekly unemployment insurance (UI) payments. Unlike regular UI payments, FPUC payments were available in full below earnings-eligibility thresholds and not at all above the thresholds.

Workers were less responsive to monetary incentives when amenities made up a bigger part of their total compensation, the study found. In terms of workplace safety during COVID-19 waves, workers were willing to sacrifice 30% of their weekly earnings to decrease their mortality risk by one standard deviation—equivalent to giving up 9% of their earnings to avoid a 1 in 100,000 risk of dying. This suggests that conventional ways to estimate value substantially underestimate how workers feel about safety in the workplace, the authors say.

"Our method has broad applicability," explains Massimo Anelli, associate professor of social and political sciences at Bocconi University, who co-authored the study. "Previous work on amenities has estimated the value of specific amenities or the overall importance of amenities for compensation. Our approach can be used flexibly for either application."