Have Wages Been Flat?

Obama in a nutshell
01/16/09 - PowerLineBlog by Paul Mirengoff and John Hinderaker

Wages have gone up, but the cash that workers see has increased only slowly for 10+ years.

Your employer does not give you benefits as a gift. These payments are part of your compensation, and they come out of the higher wages that you would have gotten if your employer did not pay for benefits on your behalf.

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Medical insurance is part of the problem. It should be cheaper when the employer pays for it rather than giving the same dollars to the employee, because the tax law prevents the employee from deducting the cost, but allows the employer that deduction. Simply put, medical benefits are paid tax free to the employee.

But, legislation adds "Cadillac-style" benefits to what the employer must provide, under the myth that you are getting something extra. These add-ons cost more than the tax benefit of the simpler insurance, so the entire package costs more tax-free than the simpler insurance would cost privately. Simply put, would you rather have the cash, or the lowest co-pays, acupuncture, and health club membership?

Obama is quoted:

[edited] Here's my basic principle: that wages and incomes have flat lined over the last decade. Part of that has to do with forces that are beyond everybody's control: globalization, technology and so forth. Part of it has to do with workers having very little leverage and that larger and larger shares of our productivity go to the top and not to the middle or the bottom.

Paul Mirengoff comments:

[edited] It should be noted that Obama's statement "wages and incomes have flat lined over the last decade" is not true. But taking it at face value, Obama derives this from statistics which do not include benefits.

The cost of labor has been rising steadily, but this is missed by indices that ignore benefits. In recent years (not confined to the last decade), workers have increasingly chosen, or have been required to "choose" by ill-advised laws, to take their compensation more and more in the form of benefits, specifically health insurance.

This is logical to the extent that health insurance is a "bargain" paid for with pre-tax dollars. But, if anyone wants cash wages to increase, as Obama purports to, there is an easy fix: repeal all state and federal mandates that require employers to provide, and therefore requires employees to pay for, Cadillac-style health benefits, whether employees want them or not. If Democrats aren't willing to do this, their protestations about "flat lined" cash compensation are disingenuous.

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See also: Company Paid Health Insurance is Part of Your Salary