Mandatory Earnings-Related Insurance Rights, Human Capital and the Gender Earnings Gap in Sweden*

Abstract

Most labour market analyses take money wages as the sole measure of compensation for labour, thus excluding fringe benefits. We examine an extended compensation measure by incorporating mandatory collective earnings-related insurance rights: the rights of individual old age pension, sickness benefit insurance and survivors’ pension. We estimate the return on investment in human capital and the gender earnings gap in a traditional earnings equation. The money wage and the extended wage are used as dependent variables in joint regressions, where a SUR framework enables proper joint cross-equation tests. The main finding is that the inclusion of earnings-related insurance rights does affect the return on education. When these non-wage benefits are included, the gender wage gap decreases by 21 per cent. However, the gender differences in returns to education are severely underestimated when money wage is used as a compensation measure.