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1.09.2006

Wow



"Real wages are flat" is something you hear a lot. "Health Care costs are rising" is something else you hear. When you display the important numbers though, with real compensation (wages+benefits), things look great.

This article is completely right that critics are finding it harder and harder to find things to complain about.

Note that I haven't mentioned Bush yet. That is appropriate: presidents excel in “managing” the economy when they stay out of the way. He’s done that pretty well, but we’ll have to see about spending...

12 Comments:

At 11:21 AM, Blogger Ivan said...

Let me just make sure that I get it out there: I would love to see plenty of changes, and the body of regulation of convoluted taxes does a great deal to hurt the economy. The government doesn't stay out of the way: it just does fewer _new_ harmful things.

The best way to phrase things: the economy is doing OK inspite of government action.

 
At 11:28 AM, Blogger Miguel said...

What are the units on the left?

 
At 12:02 PM, Blogger Ivan said...

1992 is 100, so they are % change from them.

From the article:
Focusing on real wages -- which accounts for changes in inflation, but doesn’t account for compensation that helps to cover those increased costs -- obscures the fact that total compensation has increased faster than inflation. In fact, total compensation has been growing faster than it did during much of the latter half of the 1990s, while inflation, though more volatile, has remained about the same.

 
At 12:23 PM, Blogger Miguel said...

Does it account for the fact that most companies & public sector employers are defaulting or expecting to default on both health care and pension costs? I clicked through a bit and can't tell where the figures come from... if they include expected future payoffs, I think there's a real trend to just choosing not to pay up when the time comes.

 
At 1:02 PM, Blogger Ivan said...

Pension benefits are probably not included in compensation. I'm not sure though.

Health care certainly is.

Money not spent on employee's health insurance is money well spent, as far as I'm concerned.

I'm looking forward to such a collapse, if it were to happen. More people paying out of pocket is better. The money wouldn't disappear, so it's not like the company/workers would lose.

Both Census.gov and bls.gov [bureau of labor stats] are used.

 
At 1:15 PM, Blogger Miguel said...

Sounds like niether of us knows what is measured here. Is it average income based on IRS filings? If so hourly compensation is something of a misnomer. Median wages have been declining for at least 5 years from what I've seen.

Pension benefits should be included, as they are a major part of most compensation packages.

 
At 1:47 PM, Blogger Ivan said...

"Median wages have been declining for at least 5 years from what I've seen."

Well, more accurately, they've been "flat". The whole point of the article is that compensation packages are growing while the portion paid as income is not.

These numbers probably have nothing to do the with IRS. They are surveys. That's where most economic numbers come from.

I'll email the author and ask for a breakdown of what's included.

 
At 3:59 PM, Blogger Ivan said...

I got some answers from the author:


1.Q) "What is included in "total compensation"?"
1.A)-The BLS lists the components of total compensation here: http://www.bls.gov/news.release/eci.tn.htm
[from there:
Wages and salaries are defined as the hourly straight-time wage rate or, for workers not paid on an hourly basis, straight-time earnings divided by the corresponding hours. Straight-time wage and salary rates are total earnings before payroll deductions, excluding premium pay for overtime and for work on weekends and holidays, shift differentials, and nonproduction bonuses such as lump-sum payments provided in lieu of wage increases. Production bonuses, incentive earnings, commission payments, and cost-of-living adjustments are included in straight-time wage and salary rates.

Benefits covered by the ECI are: Paid leave-vacations, holidays, sick leave, and other leave; supplemental pay-premium pay for work in addition to the regular work schedule (such as overtime, weekends, and holidays), shift differentials, and nonproduction bonuses (such as referral bonuses and lump-sum payments provided in lieu of wage increases); insurance benefits-life, health, short-term disability, and long-term disability; retiremetand savings benefits-defined benefit and defined contribution plans; legally required benefits-Social Security, Medicare, Federal and State unemployment insurance, and workers' compensation; and other benefits-severance pay and supplemental unemployment plans.
]



2.A) "Does it account for the fact that most companies & public sector employers are defaulting or expecting to default on both health care and pension costs?"

2.A) No, it only accounts for the actual amount paid out in a given pay period. Whether or not a company defaults on health insurance in the future doesn't affect the insurance you've already received. Should they default, the lack of benefit would immediately be included in the figures. As far as I can see, the only benefits that are accrued under total compensation which may be defaulted on and lost ex post facto would be company run pensions. Those are, I believe, dwarfed by the 401ks and other protected benefits.

 
At 4:41 PM, Blogger Miguel said...

Great job following up!

1. So health care costs, pensions, and payroll taxes have risen so much that take-home wages look like they're declining when compensation is up 20% since 1992? A very good argument for radical changes the health care system. If there was only some way to allow consumers access to economies of scale besides employer-provision.

2. Compensation up 20% in 13 years? How much has productivity risen in that time?

3. Employer run pensions are dwarfed by 401k contributions... I think this article shows a strong bias towards presuming that everyone is excited by gains made by the wealthiest quintile of the population.

 
At 5:27 PM, Blogger Ivan said...

1) No, companies are paying people in the form of benefits more. I would prefer cash. Here are some reforms: 1.1) tax employer payments for health care or don't tax employee payments (unlimited hsa)
1.2) eliminate the FDA
1.3) let people without a license practice medecine

2) Productivity is not uniform. Companies that heavily invest in ICT (at least in America) have disproportionately increased productivity. Are you implying that workers "aren't paid enough" if productivity has increased faster than total compensation?

3) "gains made by the wealthiest quintile of the population." That's a warped view. 401Ks are more popular and more democratized than you'd think. I'm not sure of the accuracy, but I think this site is about right to say 70% of workers participate in a 401k.

 
At 9:59 PM, Blogger Miguel said...

1. I think we have some agrement here, actually.

2. It depends on how big the difference is.

3. No it isn't a warped view. I'm happy that so many are using 401Ks. I still think they benefit the richest way more.

 
At 10:07 AM, Blogger Ivan said...

1) Indeed

2) I tend to shy away from gleaning the "deserved" wage. If workers agree to it, then it is deserved.

3) The rich have more money. It is true. So most money in 401k is from the rich. Also, there are 50% of people who might be called "poor" who hold below the median value in their 401ks. News?
His original comment on the 401ks was about total value wrt pensions. They do trump pensions. That isn't focusing on the rich, unless you call the top 70% the "rich".

 

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