Health Care Costs Displace Wages

By January 20, 2006Economy

A recent Washington Post article highlighted the fact that wages last year did not keep up with inflation for a third consecutive year, a very real concern to be sure. But what’s behind this trend? Why are real wages not increasing? While trying to blame greedy companies may have some appeal to the class warfare crowd, that argument is as accurate as Billy Crystal’s roping technique at the beginning of City Slickers. Through the first 3 quarters of 2005, two-thirds of our country’s national income went to workers’ pay. In fact, employee compensation has remained in a narrow band of between 64% and 66% of national income each and every year over past two decades. Claims that workers are getting squeezed by Corporate America simply have no standing in reality.

But real wages have been falling in recent years? So what’s going on here? Three words identify the true guilty party : Health Care Costs.

Little changed from a decade earlier, wages made up 84 percent of worker pay in 2000, while supplements (unemployment insurance, health care, pension contributions, social security…) accounted for the remaining 16 percent. Fast forward just 5 years and we find that wages have fallen to just 80 percent of employee compensation (the smallest share going back over 50 years) while supplements have surged to 20 percent. Escalating health care costs (which alone have accounted for nearly half of the rise in non-wage supplements since 2000) have been the driving force behind the current wage crunch.

The sooner this is agreed to by all sides, the better. Rehashing the worn-out class warfare arguments of the past will not get our country one step closer to a solution, and higher wages for American workers. While there is no quick and easy policy solution to reign in health care costs in America, the NAM Healthcare Agenda offers a good starting point.