September 03, 2018
Robert Samuelson used his Labor Day column to tell us that our pay really didn’t end up in the pockets of rich people. The problem is that it all went to employer-provided health care insurance. The argument is that health care costs have vastly exceeded the overall rate of inflation. Since a standard health care benefit is larger as a share of the pay of a low-wage worker than a high-wage worker, the increased cost of the benefit took away the money that otherwise would have gone into pay increases. He cites a survey (but doesn’t link to it) that purports to show this.
The problem with this story is that it contradicts the data from the Bureau of Labor Statistics which show little change in the share of labor compensation going to employer-provided health insurance. This is true even in lower paying occupations.
For example, the share of compensation going for health benefits for workers in Production, transportation, and material moving occupations went from 8.5 percent in 2004 to 9.8 percent in 2018, according to the Bureau of Labor Statistics Employer Cost for Employee Compensation series. That means that if health insurance costs had remained at a constant share over this period, wages would be approximately 1.4 percentage points higher, adding 0.1 percentage point annually to wage growth. The series actually peaked at 10.4 percent in 2014, which means that declining health care costs should have been adding to wage growth for these workers in the last four years.
There is a similar story for office and administrative support occupations where the wage and salary share of compensation fell from 71.0 percent in 2004 to 69.3 percent in 2018. The latter figure is up from a low of 68.8 percent in 2014. Again, the declining wage share of compensation only explains a small part of the wage stagnation story.
There are three things going on here. First, lower-paid employees are much less likely to have health insurance coverage at their job than was the case two decades ago. Second, they are likely to have less generous coverage, with more deductibles and co-pays. Also, they more often have to pay part of the premium. Finally, in recent years, health care costs have largely moved in step with overall economic growth, which explains their declining share of compensation.
The Washington Post may always have room for people denying that there has been an upward redistribution of income, but it happens not to be true. There has been and it is enormous.
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