Labor supply and productivity responses to non-salary benefits: do they work? If so, at what level do they work best?

Summary

The research paper "Labor supply and productivity responses to non-salary benefits: do they work? If so, at what level do they work best?" by Spencer, Gevrek, Chambers, and Bowden, published in 2016, explores the impact of a low marginal-cost employee benefit—dependent college tuition waivers—on the intended retention and performance of employees in a public university setting in the USA. The study aimed to determine if such benefits are effective and, if so, at what level they yield the best results. The methodology involved surveying full-time faculty and staff members at a single public university. Participants were presented with a hypothetical dependent college tuition waiver offered at eight different levels, ranging from 0 to 100 percent. The researchers employed ordered probit models to analyze the data, controlling for several independent variables including the employee's annual salary, number of dependents, gender, faculty/staff status, age, and years of experience. This comprehensive approach allowed for an examination of how various demographic and economic factors interact with the perceived value of the tuition waiver. The study yielded several significant findings. It demonstrated that increasing the percentage of tuition waivers for dependents positively and significantly impacts employees' intentions to work harder and remain at their current institution. Specifically, an increase from no tuition waiver to completely free tuition for dependents was associated with a 30 percentage point decrease in the probability of "strongly disagreeing" with the intent to work harder, and a 20 percentage point increase in "strongly agreeing." For retention, the probability of "strongly agreeing" to stay at the university increased by 40 percentage points when the tuition waiver moved from zero to 100 percent. Beyond the waiver itself, the amount of the tuition waiver, the number of dependents, and the annual salary were identified as statistically significant predictors of both intended increased productivity and intent to stay. Interestingly, a lower annual salary was associated with a greater intended increase in productivity and a lower intent to stay, while a higher number of dependents correlated with a greater intent to stay and a greater intended increase in productivity. Faculty members, when compared to staff members, were found to be less likely to intend to stay. Furthermore, the study noted that the expected increase in dependent enrollment hours becomes steeper once the tuition waiver reaches 25 percent, suggesting a threshold effect. The financial implications for institutions are positive, as the direct opportunity cost (reduction in revenue) from offering these waivers was found to be generally less than 1 percent of total budgeted revenue, and often below 0.1 percent for waivers of 50 percent or less. These findings suggest that for higher education institutions prioritizing faculty and staff retention and productivity, offering or maximizing dependent college tuition waivers can be a cost-effective benefit.