Leaping health costs sap pay hikes
Benefits spending up 24% in 4 years
By Kimberly Blanton
Boston Globe Staff, June 25, 2004
Money that might have gone directly into workers' take-home pay is instead
being sapped by employers' soaring costs for healthcare benefits, new
government data show.
The US Bureau of Labor Statistics reported yesterday that spending on
benefits by private-sector employers rose 24 percent from March 2000 to
March 2004, primarily because of escalating healthcare premiums. The bureau
said that came at the expense of wages, which increased 15 percent over
the same period but are a declining share of the total compensation employers
pay to workers.
Historically low inflation contributed to slower wage growth during the
recession and its aftermath. But the current trend is a sharp reversal
from the years 1994 to 2000, when wages grew much faster than benefit
Employers "are constrained by the cost of benefits," said Denis
McSweeney, head of the Northeast region for the labor bureau. "They're
there to run a business, and they realize with rising benefit costs they
don't have the ability to give everyone the increase in wages."
Businesses have become vocal about the financial squeeze caused by relentless
increases in their health insurance costs, and they have used this as
a bargaining chip in labor negotiations. Healthcare premiums have been
rising at a double-digit clip, a pace unseen since the late 1980s. Premiums
surged 14 percent last year and 13 percent in 2002, according to the Henry
J. Kaiser Family Foundation. Increases in some small employers' costs
were double or triple that.
Wages still outpaced inflation over the past four years. The average
wage of US workers in the private sector rose 17.3 percent, to $23.29
per hour in March 2004 from $19.85 per hour in March 2000. Inflation rose
9.5 percent in that period.
But benefits are swallowing up more of employers' total spending on compensation
to workers. Benefits now represent 29 percent of total compensation, up
from 27 percent in 2000. Wages dropped to 71 percent of total compensation,
from 73 percent, over the same four years.
"The insurance costs have risen so much for employers," said
Heather Boushey, an economist with the Center for Economic and Policy
Research in Washington, D.C. "It's obviously got to come from somewhere."
But other studies have shown that healthcare is also eating up more of
workers' paychecks. Many employers, citing spiraling health costs, have
shifted a greater share of premium payments to their employees or required
them to pay more out-of-pocket expenses, in the form of higher copayments
for hospital visits or prescription drugs.
Employers have used the weak job market to hold down wages and shift
health costs to employees, economists said. Most workers are unwilling
or unable to leave a job when hiring opportunities elsewhere are scarce.
Employers "don't have to worry that if they raise John Doe's insurance
premium that he's going to Company B, because Company B isn't hiring,"
Paul Harrington, an economist for the Northeastern University Center
for Labor Market Studies, said workers paid more for their healthcare
benefits at a time when corporate profits "exploded." Early
in this economic recovery -- in 2002 and 2003 -- corporate profits reached
a record 41 percent of the growth in national income. Historically, corporate
profits represented 16 percent of the growth in national income in recovery
Corporations "don't have to raise wages and benefit levels because
you've got a lot of excess labor supply, so they're able to take advantage
of that," Harrington said.