Non-monetary rewards & compensating differentials 1. What are non-monetary & non-wage rewards? MNCs Other jobs 2. Theory (Compensating differentials) 3. Empirical evidence Executive pay Teachers

1. Non-monetary & non-wage rewards Components of compensation in International Business (MNCs) – senior managers Base salary + performance component Foreign service inducement Allowances – housing, education, travel, security Benefits – insurance & pensions – see Lazear = Total remuneration Note: ‘Local’ circumstances

Local Issues Legal constraints Social custom Mandated benefits; Rewards limitations Tax law; Labor relations law Social custom Role of family & employer Role of government Economic differences

1. Non-monetary & non-wage rewards Components of non-monetary compensation for lower level jobs Flexibility of hours Security & risk of injury Conditions of work Training Preferences & tastes are heterogenous

2. Theory Two types of worker More generally Worker A: strong preference for flexible hours Worker B: weak preference for flexible hours More generally Workers vary in their preference for non-monetary or non-pecuniary factors E.g. teachers E.g. nurses

2. Theory Wage Indifference curves – worker A Flexible hours

2. Theory Wage Indifference curves – worker B Flexible hours

2. Theory Worker A Wage (Pecuniary) Worker B C Wc S WS Y X Z TC TS Flexible hours (Non-pecuniary)

2. Theory Worker A Wage (Pecuniary) Worker B C Wc S WS Y X Z TC TS Flexible hours (Non-pecuniary)

3. Empirical evidence: School teachers For current teachers there are 2 key issues in teacher labour supply: (a) Retention of teachers; (b) Distribution of teacher quality across school systems Why do teachers exit teaching? Policy debate: the relative role of pecuniary and non-pecuniary factors Shape the appropriate policy response

Pecuniary and Non-Pecuniary Factors Previous literature Pecuniary: Relative wage in other professions (Murnane and Olsen, 1989; Dolton and Van der Klaauw, 1995,1999) Non-Pecuniary: Maternity (Stinebrickner, 2002) Class size and workload (Mont & Rees, 1996)

Data Source Use MOHRI (Minimum Obligatory Human Resource Information) for the Australian state of Queensland. Covers whole population of state school teachers (31,000) Quarterly individual level data for 2001 and 2002 Detailed human resource information: Pay, allowances, contract type School information (school size, class size, performance) Personal characteristics (gender, ethnicity, disability, education, subject specialisation)

Permanent Teaching Labour Force - Summary Males Females Stayed Moved Exited Stayed Moved Exited Pecuniary : Predicted Wage (log) 3.024 2.981 2.987 2.769 2.768 2.750 Own wage (log) 3.320 3.291 3.282 3.255 3.240 3.229 Locality Allowance 0.267 0.475 0.188 0.213 0.285 0.086 Non-pecuniary: School size (log) 6.237 5.941 6.270 6.171 5.991 6.208 Average Class size (log) 2.200 2.215 2.155 2.321 2.307 2.288 High student Perform 0.283 0.230 0.251 0.285 0.249 0.276 Low student Perform 0.201 0.275 0.267 0.196 0.249 0.211 Remote 0.062 0.143 0.065 0.072 0.110 0.081 Rural 0.146 0.191 0.149 0.147 0.181 0.159 Part-time 0.054 0.149 0.253 0.204 0.289 0.376 Tenure yrs 16.091 10.716 10.670 11.765 8.906 8.300 Observations 7,566 411 1,176 19,114 978 3,269

Selected Estimates – MNL Logit, Marginal Effects Males Females (p-val) Turnover Mobility Turnover Mobility_ Pecuniary: Predicted Wage 0.021 (0.03) -0.025 (0.13) -0.003 (0.80) -0.088 (0.00) Own Wage -0.077 (0.00) -0.064 (0.01) -0.052 (0.00) -0.044 (0.01) Locality Allowance -0.008 (0.08) 0.009 (0.03) -0.041 (0.00) 0.016 (0.00) Non-Pecuniary: Primary -0.018 (0.03) 0.006 (0.62) -0.011 (0.01) 0.003 (0.70) School Size 0.007 (0.13) -0.049 (0.00) 0.003 (0.22) -0.033 (0.00) Average Class Size -0.008 (0.11) 0.049 (0.00) -0.003 (0.22) 0.031 (0.00) High Student Perform -0.003 (0.57) -0.010 (0.25) 0.000 (0.98) -0.006 (0.29) Low Student Perform 0.014 (0.00) 0.015 (0.08) 0.003 (0.28) 0.024 (0.00) Part-time 0.061(0.00) 0.121(0.00) 0.027 (0.00) 0.053 (0.00) Remote School 0.009 (0.32) 0.053 (0.00) 0.023 (0.00) 0.029 (0.00) Rural School 0.005 (0.41) 0.012 (0.21) 0.015 (0.00) 0.012 (0.06) Additional Controls: Primary, Part-time, Ethnicity, Disability, Subject specialisation, Education Quals, % Female staff, % degree staff, Number private schools in district, local unemployment rate.

Summary of evidence Pecuniary effects Non-pecuniary effects Conclusion Higher wages deter turnover. Locality allowances deter turnover and encourage mobility especially for female teachers Locality allowances retain male teachers in rural/remote locations Non-pecuniary effects Primary schools have lower turnover Difficulty keeping less experienced female teachers in rural/remote schools. Mobility away from small schools/larger classes Conclusion Pecuniary and non-pecuniary influences on turnover and mobility. Locality allowances - encouraged some movement to and reduced mobility away from rural/remote schools