Wednesday, October 29, 2008

Graph of the day: Benefits versus paycheck 

Source: BLS, Employment Cost Index. I've reindexed to the beginning of 2001, and deflated the data by CPI. (I'm skeptical of the latter in applying it to benefits, since benefits don't buy the consumer bundle but a small subset of it. But it's easily understood and, I think, avoids arguments of data mining for a better deflator.) I am pretty sure I've spoken here in the past on how different the measures "average weekly earnings" and what I grew up calling "hourly compensation" are. Only the latter includes benefits. And no doubt you've heard people say that wages have not kept up with inflation. I was provoked to draw the graph above by this:
In an interview with CNN Money, Doug Holtz-Eakin said many younger workers wouldn't have an incentive to dump job-based health insurance even if they received a $5,000 tax credit for personal insurance under the McCain plan. "Why would they leave?" Mr. Holtz-Eakin said. "What they are getting from their employer is way better than what they could get with the credit."

Mr. Obama called this "an October surprise" that "health care" will be worse "if John McCain becomes president."

For the record, Mr. Holtz-Eakin noted via email that he was making an obvious point, that people won't drop their current coverage if it works well. Employers will still need to design compensation packages to attract employees, many of which will continue to include health care. The McCain plan merely creates new options, especially for those who are uninsured now.

In any case, Mr. Obama's attack is only intelligible if you believe health insurance is "free" when obtained through a business. Of course, it's far from free -- employees pay for their health care in the form of reduced cash wages. Indeed, when economists complain about "stagnant wages" for the middle class, they are really complaining that the increasing cost of health insurance has steadily eaten up what would otherwise be visible increases in worker pay.
From today's WSJ Political Diary. Those who are working are ending up with benefit packages that are more in real terms, and buy better health care.

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