July 02, 2017
In her column on “Five Myths About Health Insurance,” health economics professor Alexis Pozen pushes a common myth. As part of myth number five, Pozen tells readers;
“Although firms may boast about offering generous health-care benefits, the costs of coverage are largely borne by employees, in the form of lower wages than a competitive market would otherwise support. That helps explain why inflation-adjusted wages have remained flat, even while productivity has increased — it’s all going to cover rising health-care costs.”
While there is some truth to this story in prior decades (only some, since payments for insurance largely came at the expense of pensions), benefit growth has actually trailed wage growth in the recovery, as shown below.
Since benefits have not kept pace with wage growth over the last five years, we should be expecting wages to rise somewhat faster than productivity since we are seeing a shift in compensation from benefits to wages.
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