Updated Jan 30, 2018 - Economy

The erosion of worker compensation

Corporate profits have dramatically outpaced wages and health benefits since the turn of the century, leaving workers on the hook for more of their health care costs even as their purchasing power falls, according to a review of federal data.

Key quote: "If I were a middle-class American, I’d be outraged," said Regina Herzlinger, a professor at Harvard Business School. "I’d demand much greater transparency about how much I’m getting in health insurance and wages."

Data: Bureau of Economic Analysis; Chart: Chris Canipe / Axios
Data: Bureau of Economic Analysis; Chart: Chris Canipe / Axios

The bottom line: American workers have not seen their wages grow in tandem with the success of their employers.

Meanwhile, health spending has been growing faster than the broader economy. Health benefits consequently are getting more expensive for employers to offer, and companies are responding by making employees shoulder more of their own health care costs — either through higher premiums or higher out-of-pocket costs, like deductibles and copays.

What it means: Health care is eating up a bigger share of paychecks that already don't go as far as they used to.

  • "Plans are getting less generous because (employers) are paying more in absolute dollars," said Michael Chernew, a health economist at Harvard Medical School.
  • "Your health benefit being 10% of your compensation isn’t as meaningful today as it was 15 years ago because spending on health care has grown more quickly," added Erin Trish, a health policy professor at the University of Southern California.
  • "If a hospital visit is expensive, someone — either the employer or the worker — is going to pick up that cost," said Matt Fiedler, a fellow at the Brookings Institution.

Yes, but: Economists say reducing the generosity of employer health plans is not necessarily a bad thing, because generous plans might encourage people to use more health care services than they need.

Plus, "the idea that an employer should be deciding what kind of health care benefits an employee gets is kind of crazy," said Dean Baker, an economist at the Center for Economic and Policy Research. But, Baker adds, there has to be a viable health care alternative for workers.

What to watch: Whether employee compensation increases more quickly, especially as companies predict even bigger profits under the GOP tax plan.

  • There is no evidence the temporary, one-off bonuses announced by many companies, and attributed to the Republican tax cut bill, will drastically change the stagnant trajectory of worker compensation.

The details: The data are from the U.S. Bureau of Economic Analysis. The growth of three economic indicators — corporate profits, wages, and money employers spent on health insurance for their employees — were compared with overall economic growth over the past 16 years. Health coverage and wages were singled out because workers often value those compensation items most when they take a job.

The analysis showed:

  • Corporate profits were 4.7% of the U.S. economy in 2000 and climbed to 9.1% by 2016.
  • Employer health coverage mostly stayed flat, going from 3.2% of GDP in 2000 to 3.7% in 2016.
  • Salaries and wages decreased quite a bit. They represented almost 47% of the economy in 2000 and dropped to 43.4% in 2016.
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