11.1 Rising Health Costs Hindered Growth in American Workers' Earnings

Module by: Christopher Conover. E-mail the author

Summary: For the average American worker, growth in real hourly earnings has in recent decades lagged behind growth in real compensation per hour, due in part to rising health costs.

Inflation-adjusted hourly wages in 2008 were 2.8 times as high as they were 60 years earlier. This has occurred despite rapid growth in supplements to wages and salaries, including employer-provided health coverage, payroll tax deductions for health-related purposes such as Medicare and workers' compensation, and other fringe benefits.

The data in figure 11.1 include only the employer's contribution toward health insurance and social insurance. Thus, the 1.45 percent employer contribution for Medicare is included but not the parallel contribution made by the employee that appears as a deduction on most employee paychecks. Likewise, the "hidden" employer contribution to employer-sponsored health insurance is included, but not the employee share of the premium (which again shows as a paycheck deduction that reduces the monetary compensation that otherwise would go to the employee).

This calculation uses the PCE price deflator to remove the effect of inflation. For several reasons, the PCE price deflator is superior to the more commonly reported CPI. It more accurately reflects changes in the purchasing power of U.S. workers. Figure 11.1 is indexed to hourly earnings rather than total compensation. Thus, it also shows how much cash earnings would have increased had there been no increase in wage and salary supplements over the past 60 years. In that case, earnings would have been 3.5 times as high.

The exact percentages are not important. As an approximation, almost half the increase in compensation for wage and salary supplements was health-related. The lion's share of these health-related add-ons was for group health coverage. Because Medicare payroll taxes support the care of today's Medicare beneficiaries, some might question whether this is an employee "benefit" at all. However, from a social contract point of view, it does not matter whether individuals are literally banking for their own future retiree health expenses or merely making their contributions into a pool in exchange for a promise to receive such benefits in the future. The purpose is unquestionably health-related.

Content actions

Add module to:

My Favorites Login Required (?)

'My Favorites' is a special kind of lens which you can use to bookmark modules and collections. 'My Favorites' can only be seen by you, and collections saved in 'My Favorites' can remember the last module you were on. You need an account to use 'My Favorites'.

| A lens I own Login Required (?)

Definition of a lens

Lenses

A lens is a custom view of the content in the repository. You can think of it as a fancy kind of list that will let you see content through the eyes of organizations and people you trust.

What is in a lens?

Lens makers point to materials (modules and collections), creating a guide that includes their own comments and descriptive tags about the content.

Who can create a lens?

Any individual member, a community, or a respected organization.

What are tags?

Tags are descriptors added by lens makers to help label content, attaching a vocabulary that is meaningful in the context of the lens.

Footer

This work is licensed by Christopher Conover under a Attribution (CC-BY 3.0), and is an Open Educational Resource.

Last edited by Jia Yao on Sep 26, 2013 2:07 pm -0500.