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March/April 1999, 
Vol. 81, No. 2
Posted 1999-03-01

Wages and Risk-Taking in Occupational Credit Unions: Theory and Evidence

by Frank A. Schmid and William R. Emmons

Most occupational credit unions serve (in part) as a means for corporate sponsors to deliver tax-favored benefits to their employees. Credit union managers administer this transfer of benefits, but their performance is difficult to measure, particularly in larger credit unions. In this article, the authors develop a model of efficiency wages and optimal risk-taking and then provide empirical evidence from a large sample of occupational credit unions. Higher wage expenses are found in larger credit unions. In addition, the authors find a negative relationship between credit union size and risk-taking. They also find that local deposit-market concentration is a significant factor in explaining wage costs and risk-taking in occupational credit unions.