Do employee benefits benefit employees?

In the three days since I posted the article below this one, I've had to revise my opinion about employee benefits.  Specifically, I've had to revise downward my estimate of the number of people who actually consider them beneficial to employees. 

My assertion in that article was that when an employer pays an expense for an employee—one that would otherwise have been shouldered by the employee—that is "compensation" that is ignored when one talks of "wages" in isolation.  The reaction, most of it coming from those who apparently would rather keep the discussion of workers' compensation confined to money wages (my educated guess: for political reasons), ranged from honest objections at this blog, all the way to primitive name-calling—ironically, by people who prefer to remain anonymous—at other blogs. 

Google buys food and drinks for employees; many other companies do not.  Some companies have matching 401K savings plans for their employees; many do not.  Many companies pay health insurance premiums for their employees; some do not.  Some companies provide child care services for employees; many do not.  I was always confident that virtually everyone considered employer-provided benefits such as those to be "of benefit" to employees. 

But, as I said, I've had to revise my estimate.  Benefits apparently aren't benefits to those whose political talking points get more difficult if employee benefits are assumed to benefit employees.  If the cost of health insurance increases, and a company pays part or all of the increase, guess what: that doesn't "benefit" the employee; sure, it cushioned the blow, or even eliminated it, but somehow that's not good enough to be classified a "benefit."  (Makes one wonder how many employers realize that any extra money they'd pay out for health insurance cost increases would not be considered of "benefit" to their employees.) 

Whatever.  In my judgment, employee benefits benefit employees, just as money wages do.  Compensation (pretax) is the sum of the two, and real compensation (pretax) has increased significantly since the business-cycle-peak year of 2000.  And, because everyone's income tax rates went down since 2000, the after-tax effects would have to be even larger; too bad the BLS doesn't publish after-tax numbers. 

I've been called an "idiot" for that thought process; if it's true, I'm in good company.  A brief search turned up a column by George Will from last year: Prosperity Amid the Gloom.  Here's an excerpt:

It is said that workers' compensation has been stagnant. But to tickle that bad news from the statistics you must treat "compensation'' as a synonym for wages, and then ignore the effect of taxation on individuals' well-being.

Kevin Hassett and Aparna Mathur of the American Enterprise Institute, writing in National Review, say annual wage growth since 2000 has been 0.6 percent, but the annual increase in real hourly compensation, including benefits -- and if you do not include them, why are they called benefits? -- has been 1.3 percent. And taxes -- particularly those paid by middle-class families with children -- have declined substantially. 

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End note:

For a look at a blog where the discourse seldom rises above the primitive level of name-calling (by people who prefer anonymity), follow this link.  If you're like me, it won't end up on your daily rounds. 

Comments

[Aaron]

Maybe its because they really only want to talk about healthcare benefits, which they regard more as a right than a benefit (probably should be state-run healthcare and paid for by corporate taxes, too.)

They should be explicit in saying this if you ask me.

By the way, that blog has 3 PhD's in Economics, but they never consider that if health insurance costs are rising, employers could also simply CUT the benefits to make their expenditures go back to the old cost to save money? Actually they mention that sort of, but its seems like they have a massive moral assumption that an employer could/should never adjust a healthcare benefit package downwards. "No, no, no, you see employers are magical creatures who need not ever consider the cost of products or services." I can't imagine what they think of a factory that switches to a cheaper supplier of raw materials...why their heads would explode! The nerve!

They also ignore that while health insurance costs have increased, so might the quality of the care.

Okay, I put some ad hominem in this comment. Sorry. I'm an employer who thinks maybe I should have some say in what I pay people, in wages or benefits. I did learn one thing from that blog, though. I firmly believe PhD's in economics should be paid the minimum wage. Anything above that is simply exploiting the people. :)

[Aaron]

Okay, after reflection I'd be curious to see any comments on these two hypothetical situations from those who think a cost increase in a benefit is not extra compensation:

Healthcare costs drop by 10% over 5 years while wages remain stagnant. Since the benefit to the worker remains the same as before, the employer is welcome to pocket the extra savings as profit.

Or even better: Nationalized healthcare arrives! Now the workers will get the same benefit from the government as he used to get from his employer. Thus the employer is welcome to keep the same old wage rate and pocket the amount he used to pay for benefits.

[CoRev]

Steve, let me take this opportunity to apologize. I enjoy both yours and their sites for the diversity of opinion. But, as you can tell as we get closer to elections the "left leaning" site gets more strident and in one word "ignorant."

As I mentioned in the comment string over there you had already given up on their site. Do not worry about them. Your articles and your readers are far more profound.

Aaron, I will take two of selection "B". If a corporation I will pass some on to my share holders, and hold the remainder for bonuses. If small business I, the owner, will keep nearly all.

[Bob]

Any meaningful discussion on the topic of employer subsidized health care costs should take into consideration the effect of co-pay for routine visits.

I suggest that people that have a choice of plans and gravitate to those that offer the least amount of co-pay can drive up their cost of health insurance. Why pay $300 more per year for a $20 co-pay instead of $30 (example)?

Here's two ideas to help alleviate
costs going forward:

Allow interstate competition among
insurance providers.

Do away with the annual surrender of health care savings plans.

BTW, Steve, those extras that companies like Google provide are commonly called "perks". Yes, they are a form of compensation but so are stock options and options are not treated as an operating expense.

Nevertheless, I am in general agreement with your hypothesis. If I'm considering an offer from 2 or more employers, I'm comparing them
side be side and going with the one that provides the best overall
package, all else being equal.

[CoRev]

Bob, Over all I agree with your premise. Steve, however, was not talking, just, about health care. Over at AB that's what they changed his subject to. And, as has already been pointed out, they at AB have some, err ummhh, contentious opinions of health care.

[marmico]

The crux of the matter is that one cannot conflate the real business employment cost index total compensation of 5.1% from Q1 2001 to date with the value of the real benefits received by workers.

Increased employer costs in benefits do not translate one to one to increased employee benefits.

In the early 2000's business was faced with substantial real increases in health care costs which were ultimately downloaded on employees over several years in the form of elimination of coverage, increased premiums, deductibles, copays, etc.

The following chart shows the nominal outcome of the downloading.

http://www.bls.gov/ncs/ect/sp/echealth.pdf

[spencer]

There are really two issues here.
One is the value of benefits that you have covered very well. Total compensation includes benefits that the employee receives and is a better measure of their economic well being than just wages.

The second is income inequality. Wages or average hourly earnings data is generally a measure of middle class Americans and does not include the much larger increases the top 1% or just 0.1% of the income distribution have received. But compensation is all inclusively and includes those item such as stock options and other capital gains that have played a major role in the growing income inequality in the US economy over the past quarter century. So when you talk about average employees benefiting from the more rapid growth in compensation when a significant portion is due to CEO's and other superstars more rapid income growth you are cleating a biased argument.

We have good data on the share of fringe benefits in the compensation data but we do not have good data on the role that growing inequality plays in the more rapid growth of total compensation. But we do know from other data that it is important enough that it could cause the compensation data to be misleading and overstating the economic well being of average employees in just the same manor that wages understate it because they omit
fringe benefits.

We need to incorporate the "Bill Gates" effect on the compensation data.

[Steve]

Spencer:

I agree that we need better statistics for evaluating inequality.

Some numbers that would help me, but I can't seem to find anywhere, include time series data on: real disposable personal income by income quintile; persons per household by quintile; adults per household by quintile; working adults per household by quintile; and hours worked per year per household by quintile.

If anyone can point me towards any reliable sources for that data, I would be very grateful.

[Thinker]

I'm only going to comment on the negative implications of "anonymity" according to Steve. Sure, some of the anonymous posters are nothing more than gutter-level intelligence. Others of us work for major benefits providers, or policy-setting organizations, and will summarily found out how valuable those employee benefits were after termination.

[Steve]

Thinker:

Termination for doing what?

[Grodge]

I find it odd that Steve has become so defensive of the generosity of employers who continue to provide health benefits for employees.

Opiners here and at Angry Bear do not seem to be castigating employers so much as recognizing the untenable position all of us are facing with the increasing cost of health care.

Sure, compensation has increased (and kudos to employers for that I suppose!), but the impact of creeping inflation is real, and those effects are felt by hourly employees who have seen no increase in wages over 7 years. Nobody is faulting individual employers so much as we are faulting the BLS for failing to recognize the negative impact of these inflationary factors and the Fed's failure to reign in inflation with it's piss-poor monetary policy.

I think that is the point of John Edwards campaign "debate" speeches as well, although Steve did not furnish a link to the debate transcript, and I'll be damned if I could listen to those ridiculous "debates" live.

[JorgXMcKie]

Grodge (and others), a good deal of the 'inflation' in health care benefits is driven by the form of these health care benefits themselves. So long as 'health care' includes forced coverage for very unlikely, but very expensive, illnesses and access to the latest medical technology, it has no choice but to inflate.

As an exercise, one might compare the cost of the health care available in 1995 with the cost of *identical* health care (i.e. no new medicines or other advances) in 2005. I'm willing to bet it has decreased.

There is not really inflation in the case of health care so much as there is new health care available at high costs.

Covering everyone in the US with 1990, say, type health care would not be all that expensive, comparatively. Covering everyone in the US with every conceivable form of care in 2008 probably is prohibitively expensive.

And the angrybear guys basically want to restrict the argument to only those data that support their points. No other topics or data or argument are welcome. For instance, they like to harp about the median 'household' income without having to admit that the average 'household' has changed drastically since 1975 and that the average 'household' itself moves up in income while comparing the quintiles does not allow for that. Including those two points pretty much destroys most of their 'arguments.'

[Ben]

I read a lot of the comments at the Angry Bear site, and I don't see the arguments as being the same. Simply put, if I get more dollar value in benefits from my employee then my compensation has gone up. Granted, it may not have gone up fast enough to keep pace with what the market demands, but it's still increased. Isn't that what this argument is supposed to be about?

[markg]

How do you calculate the value of a benefit that varies for each individual? Family A has a kid that was cured of cancer (who would have died 20 years ago). Family B has to pay a higher co-pay for their child's acne medicine.
Does family B have a right to be outraged? Problem is for every family A there are hundreds of family B's. Hence the large degree of (unjustified) outrage.

[DavidS]

Another first-timer post - Great Blog Steve...

First, what a chuckle I get whenever I see someone post about a John Edwards "point" regarding the economy or health care specifically. The hypocrisy is dripping down my screen!

Second, I wonder if any readers of this Blog see the brilliant point within markg's post above?! I've spent the last 30 minutes cruising through these threads, reading about the "poor middle class" unable to keep up with rising health care costs. WAKE UP, and ignore the lies of the likes of Michael Moore, et al. The U.S. health care system is by far the greatest on the planet, and there are many, many families praising their doctors, every day, for their family and friends who would be DEAD except for the wonderful advances in medicine, minimally invasive surgeries, and generally improved knowledge of what makes human beings live longer. (they may be praising God, but I think Alec Baldwin's surgeon character from that movie with Nicole Kidman said it best...)

Is ANYONE complaining about paying $100/mo for 500 channels (30 in HiDef and video on demand), when they only had to pay $19.99/mo back in 1985 for 30 pathetic channels? How about that $45/mo Broadband connection you pay today, vs $10/mo dial-up connection of only 5-10 years ago?

Feel free to respond with the obligatory "health care is a right" commentary... I will not participate - we have a fundamental difference of opinion. But at least acknowledge that the rising costs for health care in this country are not associated with STAGNANT quality/breadth of care - that is plain ignorant.

[DavidS]

For those wondering about my Alec Baldwin reference! The movie is Malice... (love the George C. Scott cameo)
http://www.youtube.com/watch?v=LqeC3BPYTmE

Of course this is in good humor, but the fact remains that our country's great surgeons are working miracles every day...

[cactus]

As the author of that piece, let me try again:

1. Employers are providing insurance to a smaller percentage of their employees

2. Insurance is going up in cost

3. When employer provided health insurance is canceled for some employees rather than kept or eliminated for all, those who keep it are the top level folks, and those who lose it are the bottom level folks.

4. The fact that the CEO's insurance is now even more gold-plated doesn't mean the guy whose employer-provided insurance package was canceled is getting a better deal now

[Dave]

I have to admit the commenters in Steve's last post kind of convinced me that maybe they had a point. But then I turned the argument around and it failed.

Detracters of Steve's premise state that wages (not total compensation) are a better measure of if the middle class has improved since 2000, because a large portion of the increase in total compensation, was due to rising health care costs which in turns makes their healthcare benefits more valuable.

But, what if employers had slashed healthcare benefits but increased wages by an equal amount? Would they still feel wages are the better measure, instead of total compensation? In that case, wages went up, but total compensation was stagnant.

Example
You make $4000 a month
Your health insurer charges $300 a month
You pay $100 a month for your health benefits
Your employer pays the other $200

Now imagine you get a raise, but your insurer also increases your premiums due to rising health costs, BUT your employer passes that increase on to you.

Now you make $4200 a month
Your health insurer charges $500 a month
You pay $300 a month for your health benefits
Your employer pays the other $200

Wages increased but benefits decreased (and therefore total comp is stagnant). Does any still think wages alone are a better measure?

[AH·C]

Dave, that's flawed reasoning.

The Employer paid you a net increase of $200. The fact that the insurance raised their rates by $200, means that YOU have to pay more of the same. Your income still went up. Try telling the IRS otherwise.

It's all about you because, assuming you're covering just your wife and yourself, the guy in the next cubicle choose not to be insured, hence is $300 ahead of you, when he used to be $100. Meanwhile, the other guy with the family "loses" even more, although he can be consoled by the child credit rebate at tax time.

Then compare your company to your competitor where the employees earn the same salaries as yours. However, a couple of them have had cancer or some other major illnesses and, as a result, the insurance is higher across the board.

This is a good reason why health insurance should never have been tied to compensation. Imagine if your auto insurance was covered by your employer. If the insurance company looked at your company and charged you more because most of your colleagues are young and like fast cars, but the competitor paid lower rates because they were mostly middle-aged and drove minivans. How fair or logical would that be

If health insurance was personal and portable across state lines, then you would be solely concerned with getting the best rates possible for the specific coverage you want, just as you do with home & auto insurance. That is the only fair way to go. Tangentially, that's why SS withholdings should also be solely on the employee, because when politicians start mucking with it, you're liable to react strongly, but that's another subject.

As a side note, companies usually use a percentage rate, i.e. 50-50 or 70-30 etc. when offering insurance. Also the employer benefits, in a way, if most employees chose not to insure because the employer's contribution are already calculated into the labor rate. Thus that is an expense they don't have to pay. On the flip side, the employer has to set aside more for those with families that elect for the insurance.

[Dave]

Of course income went up in my example. That was my whole point, wages increased but total comp was stagnant at 3900 a month, so I am no better off then I was before. I was showing how wages alone might not paint the total picture, as some people were arguing they were somehow a better measure of a workers well being than total comp.

[AH·C]

Dave, either you missed my point or we're talking past each other:

Your total comp was stagnant because you CHOSE to keep the insurance. When compared to the colleague who chose not to have insurance, his TC went up and for the other with a family policy, his TC went down.

In each case, TC depended on whether one elected to have insurance or not and TC mileage will vary from company to company with all else remaining the same due to shared risk of the employee pool.

[st4rbux]

As an employee, I'd like to know exactly what my total compensation is (even if they have to average out items like free sodas which I may or may not consume). A quarterly/annual statement should be easy for them to pull together...

No companies that I know of do this -- why wouldn't they? I think it would let employees know that they are worth more to the firm than just their salary reflects, and may prevent turnover if employees consider leaving for higher salaries with less perks.