Wednesday, September 03, 2008

Counting Fringe Benefits, Real Hourly Worker Compensation Is 9% Higher Today Than In 2000

Just last week, the Census Bureau released its annual study of household incomes, poverty and health insurance -- often called the nation's "economic report card." Its hard numbers seemed to confirm how many Americans feel. Sure, we're prosperous, but prosperity is fraying. Except for the rich, living standards are stagnant. Poverty is up; health insurance coverage is down. Naturally, both Barack Obama and John McCain seized upon the report to claim that their policies would restore progress.

Hold it.

Superficially, the conventional wisdom seems convincing. The Census Bureau found that median household income in 2007 was $50,233. Though up 1.3% from 2006, that was still less than the peak of $50,641 in 1999. But Census counts only money income -- wages, salaries, dividends, interest payments - and compensation growth is increasingly channeled into fringes.

~Robert Samuelson's article "The Real Economic Scorecard"

MP: As the chart above shows, real compensation per hour (BLS data here) for the business sector, although flat recently, has increased by almost 9% since 2000. In other words, after taking into account fringe benefits, the average worker is 9% better off today in real terms than in 2000, even though the Census data shows a slight decline in real median household income since 2000.


At 9/03/2008 12:36 PM, Blogger Danny Gamache said...

Isn't this really just a reflection of the drastic rise in the costs of medical coverage? Really people are not getting more benefits, its just that employers are paying for more expensive medical coverage.

At 9/03/2008 12:51 PM, Blogger Héctor said...

Congratulations for your blog.

First i want to apologize because i´m spanish and i speak english very bad.

Your analysis is very great. You have made a good job.

See you!

At 9/03/2008 1:19 PM, Anonymous EJ said...


Well a large chuink of this has bene an increase in 401k plans and flex time and so on, but with regards to healthcare, in part yes, its just more expensive health covergage. But two things on that.

1. The growth in the price of health coverage isnt all inflation. Part of it is that health coverage covers more then it used too simply because more drugs and procedures have been developed with every given year. Insurance would be really cheap if it only covered procedures known say 20 years ago. For instance, today you get cnacer you get tens of thousands of dollars of radiation and kemo. 30 years ago, you just died. So part of this is workers are getting more healthcare.

2. Even though a large chunk of this is increased price. The graph with fringe benifts is real compensation. Because healthcare has in recent years grown faster then the rate of inflation, if you removed the healthcare price increase form the above graph, and also removed its effects on general cpi, then the real wage and sally portion of compensation woudl be higher because inflation would be lower excluding healthcare.

So it is a factor, but real compensation as the chart shows has increased.

At 9/03/2008 1:45 PM, Anonymous Anonymous said...

danny gamache,

If you had to pay that out of your pocket, you might think differently. Maybe every pay stub should have fringe benefits listed on it. That would include the 7.65% that the employer pays for SS and hospitalization. I sit on committees that deliver make or buy decisions. We use total compensation—not hourly wages—to make business-case decisions. We make difficult decisions to stay open. Contrary to popular opinion, union life is not easy anymore.

At 9/03/2008 1:51 PM, Anonymous Anonymous said...

Since this "error" is consistent over time despite the many attempts to point it out, I presume it is not inadvertent but intentional.

At 9/03/2008 2:20 PM, Anonymous Anonymous said...

"The Average Hourly Compensation is 9% Higher today than in 2000" - I would agree with that but what about the costs:
1. Inflation is consistently 2 - 3% for the last 8 years.
2. Health care and benifits rate is higher

I think a fair comparison would be to adjust the income to account for overall inflation...

Also, as a cost analyst/industrial engineer we have the same problem in our company.
We pay about 47% in benefits above the hourly wage so the actual cost for the company is high. But as the coverages are reduced, the hourly people complain that they barely make it. Bottomline for the current situation is high cost to the companies and relatively low wages for the hourly employees (if we account for inflation).

At 9/03/2008 2:35 PM, Blogger Mark J. Perry said...

Danny: The series I'm showing, is REAL COMPENSATION, adjusted for inflation.

At 9/03/2008 4:26 PM, Anonymous Anonymous said...

In other words, after taking into account fringe benefits, the average worker is 9% better off today in real terms than in 2000

Are you certain of that? The BLS data (Table 4) disagrees and indicates that the real civilian employment cost index (ECI) was 94.6 in Q1.01, peaking at 100.8 in Q4.06 and printing 97.4 in Q2.08. It will print lower again in the current quarter.

Q1.01 (Bush43 ascendancy)to Q2.08 is a total gain of 2.8 index points or 2.96%.

Government workers have fared slightly better than private industry workers.

Hecka of a job, Bushie. By the time you exit office, there maybe no change in real ECI during your presidency.

At 9/03/2008 4:35 PM, Anonymous Anonymous said...

Yes people are much better off today than in the early 70s'. A college graduate back in 1970 could never ever afford to buy a house and a new car, and he would not have had the great health benefits we all enjoy today.

Every college gradute today will quicky find a very high pay job with great benefits. And of course he will be able to buy his home with a white picket fence and his new car. We should be greatful for the great economic times we live in today.

Even most service employees working in the food industry have health insurance and are buying their own homes.

At 9/03/2008 5:47 PM, Anonymous Anonymous said...

Anonymous is yet another magical thinker who believes the President controls the U.S. economy. Presidents can work with Congress to screw up the economy through bad tax policies, wage and price freezes, government overspending, and high tariffs. But, the President alone can have no significant effect on our economy. I am very tired of the "Bush wrecked the economy" meme.

At 9/03/2008 6:34 PM, Anonymous Anonymous said...

Anonymous is yet another magical thinker who believes the President controls the U.S. economy.

Whatever, dr. t. Do you have any evidence to the contrary? Didn't think so.

I already chastized Carpe Diem on the ECI index and it's not like Samuelson is an economic heavyweight.

Round one to anonymous. Are you ready for a fifteen round heavyweight prize fight or are you an ad hominem ear biter?


At 9/03/2008 9:29 PM, Blogger save_the_rustbelt said...

"the average worker"

This really does not tell us much. More data required.

At 9/04/2008 10:27 AM, Anonymous Anonymous said...

Anonymous is yet another magical thinker who believes the President controls the U.S. economy.

Whatever, dr. t. Do you have any evidence to the contrary? Didn't think so.

So, you are asking him to prove that the President does not control the US economy? It is incumbent upon you to prove your claim. You are taking the cowards way out and committing a logical fallacy by asking that others prove that the opposite is not true.

At 9/04/2008 11:33 AM, Anonymous QT said...

Good point, Anon. 10:27.

Impuning motivation however weakens the argument creating an opportunity for the debater to sidestep the issue by summarily dismissing your argument as ad hominem.

Thanks for a good article. Many of us are new to formal logic and most of us have grown up listening to arguments that appeal more to our emotions than our reason.

Thanks for keeping us on our toes.

At 9/05/2008 7:34 AM, Blogger Kevin said...

Hi Mark --

I'm with some others here. Are this numbers REALLY inflation-adjusted.

Yes, I do realize the adjustment has been made for inflation, but most of what you are pointing to as gains in compensation is in a specific area: the soaring costs of healthcare.

If gains in compensation are limited to the area of healthcare, then the rate of inflation in healthcare needs to be applied to those gains and NOT the overall rate since the compensation cannot be shifted by the employee to be used as desired in other areas where inflation is much lower (or even negative).

At 9/05/2008 3:06 PM, Blogger OBloodyHell said...

> union life is not easy anymore.

And well it should be, Walt -- The exercise of power over others' lives and wellbeing never should be "easy". If it is, there's probably something wrong with the system.


Anon 4:26 -- get a clue from Anon 4:35.

And both of you: Make up a name, for cryin' out loud.

> Whatever, dr. t. Do you have any evidence to the contrary? Didn't think so.

Ah, me. Ask a question, and answer it yourself. We can tell how open your mind is...

> Round one to anonymous. Are you ready for a fifteen round heavyweight prize fight or are you an ad hominem ear biter? PISS OFF

...followed by a self-congratulatory back pat and an insult.

We can tell your genius. It's so overwhelmingly obvious that we dare not say a word against you, lest you destroy our paltry egos with your devastating tongue lashings. We cower and tremble in your presences, your anonymosity...

In your *special* case, let me extend the above suggestion a bit:
"Make up a name, you imbecile."

Yes, that's somewhat ad hominem. It applies, since you've done nothing but stroke your own pansy widdle ego like the bletcherous troll you so clearly are.

I dub thee "anonymimbecile" -- "mimbecile" for short.

At 9/05/2008 3:30 PM, Blogger OBloodyHell said...

This comment has been removed by the author.

At 9/05/2008 3:34 PM, Blogger OBloodyHell said...

P.S., the whole argument ignores key relevant facts, too -- overall subtle quality issues:

1) Cars last longer than they did 20, or even 30, years ago. Safety expectations are much, much higher, as well.

2) Improvements in TV, Audio, and Computers lead to much better systems being available all around -- personal, residential, and transportational. Cars are now coming with multiple independent entertainment systems now, for the latter.

3) Phones. The average phone call is available anywhere, and, if it's long distance, costs far less than it did even 25 years ago.

4) Food. Food is far cheaper than it was in the past. Some would argue that has cost quality, but that is a subjective impression. I dare you to compare the average "TV Dinner" now with one from 30 years ago. "Instant potatoes", also, are far, far better than they were then.

5) General entertainment. Movies, Computer games, TV shows, all are done at a much higher level than 20 or 30 years ago, increasing their potential ability to entertain (even low-budget movies are done much better now, on a technical level, than 20 years ago. Steadicam technology alone has improved such things.

6) Appliances. Microwaves, stick blenders, expresso machines. All things that were very expensive if available at all 20 or 30 years ago.

A lot of what we take for granted in life, now, is not so much more, but of a better level of quality than 20 or 30 years ago -- even 10 years ago is getting notable*.

The use of the computer with a laser printer, as opposed to an old manual typewriter, hasn't really made more documentation, but it has substantially improved the expected minimum quality level of the document. We don't accept "corrected" text, we expect graphs and illustrations. With the internet, we expect supporting links and outside references to be readily available.

The bar has shifted higher, and a crude document looking like Dan Rathers' falsified TANG memos, which used to be the norm is no longer even vaguely acceptable.

* As an example, if one takes a look at Star Trek, the Original Series, one sees it and expects it to have a sort of cheezy, fake feel -- after all, it's over forty years old now.

But the thing is, if you look at the early episodes of The Next Generation, those are starting to look a bit cheezy, as well.

Our base expectations have risen so much that a vision of the future, only 20 years old, is now starting to look crudely done by modern standards, despite the fact that it was literally state of the art at the time.

So a lot of that additional wealth that we all have has gone into a not-so-visible side lane, of meeting our increasing expectations.


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