Arnold Kling

Are Workers Getting Good Jobs?

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Health and Taxes... Drug Companies and Rent-Seekin...

Two pieces in the New York Times discuss the labor market. Alan Krueger talks about the issue of defining a "good job."


Neoclassical economics hardly recognizes a distinction between good jobs and bad ones. All workers are supposed to be in jobs that reward them appropriately for their performance, which depends on their skills and effort. Supply and demand for workers determine their appropriate pay, benefits and working conditions, and there is little else to say.

...but an expanding line of research, thoroughly summarized in a recent book by Alan Manning called "Monopsony in Motion" (Princeton University Press, 2003), shows that monopsony power can exist even when there are many employers in a market, if workers are immobile or imperfectly informed about alternative job offerings.

...If the labor market corresponded to the competitive ideal, in which all jobs offered appropriate compensation based on workers' merit, there would be little need for civil rights legislation, unemployment benefits, safety and health regulation, the minimum wage, or Social Security. Expect the debate to continue.


Eduardo Porter writes,

Government data, industry surveys and interviews with employers big and small indicate that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation's employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies.

Maybe that is what explains one fact that Krueger cites, namely that
The average real hourly wage of production and nonsupervisory workers, who make up 80 percent of the private work force, actually fell over the last 12 months; the increase in the wage rate was one percentage point less than the inflation rate.

Perhaps if you look at total compensation, including health care payments, those lucky enough to be employed are getting significant raises.

For Discussion. What would be the economic advantages and disadvantages of doing away with employer-provided health insurance?


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TRACKBACKS (6 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/108
The author at Catallarchy in a related article titled Regarding total employee compensation writes:
    Arnold Kling points to two recent articles on the labor market, one deriding the neoclassical conception of labor market mechanics and defending government intervention, and other pointing out that businesses are reluctant to bring in new employees du... [Tracked on August 19, 2004 8:09 AM]
The author at Ashish's Niti in a related article titled Crisis in health insurance writes:
    Crisis is health insurance is because of third party payer system [Tracked on August 19, 2004 10:26 AM]
COMMENTS (11 to date)
Matt writes:

Business 2.0 has an excellant one-page article on the recent trends with health care costs eating up the money that corps would typically give in raieses. So, while wages are dipping or staying static, total compensation is actually increasing with or above inflation.

And the big culprit of course is that everyone in a company is a pool, which hurts the younger people and helps the older people. We young people are basically subsidizing health care for the older workers and I'd like to see that done away with. If each person was responsible for their own healthcare, it would mean each person pays for their good and/or bad behavior and is much more equitable.

I'd love to see health insurance uncoupled from fulltime employment, largely because I don't want to have to work fulltime. It's a crazy way of locking people into jobs -- people are terrified of making moves partly because they're terrified of losing health coverage.

Personally, I think that making the costs of health insurance deductible (to a point) for individuals and not for businesses would be a boon for American arts. You can't imagine how many arty people are working fulltime jobs strictly for the health coverage, when they'd much prefer to work parttime jobs and give over the time and energy to their arty interests.

BTW, I do understand that it's possible to arrange health coverage outside fulltime employment. But let's face it, as a realistic thing, few people are aware of the mechanics, and fewer are taking advantage of the option.

All of which raises another question I'd love to see economists wrestle with a bit more often: the phenomenon of people whose idea of a life worth living doesn't involve devoting maximum time to maximizing income, and who feel trapped in a world that seems designed for those who do want to live that way....

Lawrance George Lux writes:
What would be the economic advantages and disadvantages of doing away with employer-provided health insurance?

Employers would not find the value in it that they would think. They would find approx. half of their best Labor taking a Hike, unless those Workers were given an immediate $7/hour raise. The good element would be that Everyone would realize the irresponsible increase in Health Care Costs made it impossible to rationally operate in the Economy.

The Health Care industry insists on the highest Profits of any industry in the Country, coincident with the highest paid Labor force in the Country. This conducted with a spectrum of univeral care, in an industry which is not economically productive except in the preservation of the productive capacity of labor--which makes up only about 20% of its business.

Everyone talks about Health Care as if it is the supreme Good, the stairway to Heaven. The actual fact states that 'restored health' has been declining as the end-result percentage in medical cases, the duration of treatment has been lengthening alarmingly, and the treatment cost has been going up at approx. 10% per year. Health Care is not 'Heaven on Earth'. lgl

DSpears writes:

The problem with Healthcare is the 3rd party payer system. Until that goes away healthcare costs will continue to increase AND patient satisfaction will continue to decrease as care is rationed.

The employer provided "system" (it's not really a system, it wasn't designed by anybody on purpose) is the result of perverse taxcode incentives that originiated with companies trying to find ways to attract workers during wage and price controls during WWII. Health insurance is paid for by companies in pre-tax dollars, so if your employer stopped paying for your insurance, it wouldn't be able to hand you back the difference in exchange OR be able to add that amount to it's bottom line.

If 100% of that difference went to the employee, part of it would be taxed away at his marginal rate, leaving the employee without health insurance and without enough extra income to pay for an insurance policy. Theoretically, to keep him from leaving the company would need to give an extra amount to make up for the tax loss. But since that money would now be subject to social security, medicare, etc. witholding, that comes off the companies bottom line as well. Both parties are worse off even in the 100% goes to the employee situation.

If 100% of that difference went to the company, then they will have to find another way to keep all of the employees who just got a big pay and benefit cut from leaving, and pay for it with pre-tax dollars. The difference would go to the government. That's why employers and employees don't ever agree to do this, because they both lose.

I believe it was Milton Friedman who boiled down his life's work to: Incentives matter and there is no free lunch.

Those two simple concepts are at the root of every problem in the healthcare industry around the world.

Silly marxist ideas about companies making "too much" profit are counter-productive and solve nothing. Rent-seeking exists because in markets distorted by government regulation, taxes and subsidies, it is the most efficient way to maximize profit. The only way to eliminate rent-seeking and it's twin sibling corruption is reduce the power of the government until it is no longer a commodity valuable enough that people will pay for it.

If prostitution is the world's oldest profession, then rent-seeking is the second oldest.

Lawrance George Lux writes:

Arnold,
I should not do this, but I like the sight of my own words. I have just posted the latter on another site as response to another:

1) The National Debt has to be repaid, without doing so, the Dollar will be worth one-third of it's current value within the period of the next Administration. Why does Greenspan raise Interest rates in the middle of a Downturn--not to fight Inflation, but to forestall massive release of foreign-held Treasuries.

2) Keynesian Deficit spending does not fuel the economy. This has been proven repeatedly. The current Bush administration has provided more economic stimulus than any Administration prior to the Reagan administration, who tried the same thing. Both Reagan and Bush have enjoyed what are effectively Recessive conditions through most of their Presidency. The would be highly contested by many Economists, but most would be honest enough to agree that Average American Standard of Living dropped throughout both periods.

3) Business freedom from taxation does not enhance economic performance, only encourages Profits-taking. Both the Reagan and Bush administrations( Father and Son) showed decreases in the rate of hard capital construction for the wholely undesirable increase of Paper instruments.

4) You mention Globeization--I wish I had never heard the term! The fact stands that Our Trade Deficit has quadrupled since the time of Ronald Reagan, while Our Exports stay static. We have lost a million high-paying jobs for each year of the George W. Bush administration to Outsourcing, which were replaced--when they were replaced--by Jobs paying on average about $8000 per year less. Explained in another manner: We lose about $1 in lost Wages, for every $2.3 foreign manufacturers collect from the sale of foreign product to Us.

5)We need the Draft--though the Military is utterly opposed. We have too many family men in the Military, and they are too old. The sheer number of troops need to be increased, due to the commitments which our Political regime has made. This for purposes of adequate rotation. Your portrayal of lost Taxes is rather poor, as Military pay is equivalent to the pay which could be obtained by the majority of Draftees at the age they would be drafted.

6) Investment is not the great Economic God--hard Capital construction is. The proliferation of Paper Instruments actually reduces the Profitability of hard capital construction, while Paper Instruments, basically Inflationary in character, can always raise the rate of Return to maintain a superior position over hard capital construction. Supply-Side Neoconservative Republican ideology on Investment remains the real basis for the Recessive conditions found in the Economy. lgl

Alex writes:

Agree generally with what LG Lux stated.

Stephen Richards writes:

"Perhaps if you look at total compensation including health care payments, those lucky enough to be employed are getting significant raises"

No. Instead cheaper coverage plans are being offered by companies as they strive to reduce costs.

Mr. Econotarian writes:

Wage and salary component of the employment cost index for civilian workers rose 2.5% in the 12 months ended in June. Total compensation rose 3.9%, driven mainly by health care benefit costs.

Lawrance George Lux writes:

Based upon the total recompensation package received by all Workers, including those who were not Outsourced, Downsized, or Pension-shriven. It is also not adjusted for Inflation. It also includes the Professional Group--Doctors, Dentists, etc.--who maintain Fee charges two percent above the Inflation rate. lgl

Bill Shaffer writes:

A fundamental flaw in healthcare in America is the myth of price controls. Whether government or HMO, payers ;try to control costs by setting price caps -- which inevitably result in shortages. Hence, 44 million Americans are without healthcare insurance coverage -- because they are priced out of the system.

A whopping 85 percent of them work for wages -- albeit in low-wage jobs. Their employers offer a take-it-or-leave-it, one insurer option (with that insurer no doubt shaving costs to the bone when claims fall due). All in the name of economy -- but a false economy, at best.

Restore a free market and watch healthcare become a real business.

Lawrance George Lux writes:

Bill Shaffer,
A real suggestion on Price Caps could be not to worry about Price, but to consider Patent rights instead. They are granted in number of years right now, but could be granted in terms of total dollars attained--like ten times R&D costs. Business would be inclined to space out Profits in order to maintain Production at adequate rates. lgl

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