Benefit Games

In correspondence (and discussions), I’ve received complaints that the chart showing stagnation of real wages does not take into account benefits — particularly healthcare benefits — so that total real compensation has been rising.

The problem with that analysis is that if you are paid $20 per hour, then you can deflate by CPI to get a real wage, but if you are paid $20 per hour and a voucher for $10 of medical care, then you cannot deflate $30 by the CPI to get the real wage. You have to deflate the medical care voucher by the price deflator for medical care — only the cash can be deflated by the general price index.

So just because health-care benefit costs have been rising, pushing up total employer costs, does not mean that real wages, including benefits have been increasing. And if you take into account that defined benefit pensions were common in the past, whereas they are virtually non-existent in the private sector, then there is no reason to believe that benefits, in real terms, have been increasing. If anything, previous generations received more benefits, but the cost of those benefits, particularly in terms of pension plans and medical plans for retirees, are only being realized now.

Benefit Games

7 thoughts on “Benefit Games

  1. vjk says:

    “stagnation of real wages does not take into account benefits — particularly healthcare benefits”

    I am not sure how one can make such complaints and I wonder what specific data your critics have to show that medical benefits improved in any quantifiable sense. Based on an admittedly limited statistical selection of my friends and acquaintances (about a dozen or so ;), medical benefits have been deteriorating during last several years both in the sense of coverage spectrum as well as employee contribution amount increase. Some smaller hi-tech companies simply do not offer any medical insurance any more just some amount of cash ($300-$400), regardless of the employee age, family size, etc., to alleviate somewhat the burden of buying your own insurance. With the medical cost uncontrollable growth, it is not surprising at all, though.

    So, one would venture to speculate that both wages *and* medical benefits deteriorated in synchrony rather than the latter making up for the former.

    1. Well, certainly healthcare has improved since the 1960s, so if coverage was the same, then that would be a real increase in compensation. As you point out, coverage has been declining. There is just no way that in real terms, benefits have been increasing fast enough to overcome the real wage stagnation.

  2. JoeYnot says:

    Simply because you can’t figure out how to quantify healthcare costs properly, or to be accurate, because you don’t care to put the work in to figure out how to do so, is not the same as they’re not existing.

    Unless you can prove that healthcare costs and coverage are identical in cost and effectiveness now as they were at the time, then of course they are part of a change in employee compensation.

    Similarly, you have to figure out what the difference in defined benefits as well as their comparitive costs to understand if there has been an increase or decrease in compensation.

    All you’re saying is that you don’t want to work anymore, so the job is done.

    You must have tenure.

    1. 🙂 I don’t have tenure. Peeling away the vitriol, it was basically a request for more data, whereas my focus was on attacking the practice of simply adding benefit expenditures to wages and then deflating by the general CPI. I might put up another blog comparing the rise in benefit expenditures with price inflation in the healthcare system, but that’s a bit tricky, because what you want is the deflator for private health insurance that firms purchase. I don’t believe that there is such a deflator. There is a general deflator for medical services and medical commodities, but this understates things as private health insurance is much more expensive than medicare per “unit” of medical consumption delivered.

      In any case, this is a blog, not a thesis.

  3. Sergei says:

    There is one more problem with this “complaint”. It is the structure of the economy. If healthcare takes an increasingly larger share of the economy, then obviously the healthcare component of “complained wages” shall also increase everything else equal. Moreover, the increasing share of healthcare in the economy does not necessarily indicate the increasing quality of life. It can also be perfectly the opposite.

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