Arnold Kling  

Measuring Labor Income

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This post by Ben Muse shows the potential for mischief in talking about declining wages. He cites an article by Michael Pakko and quotes Pakko as saying,

Having reached a peak of 58 percent in 1970, wages and salaries have declined to only 52 percent of national income in 2003. However, if we consider total compensation—including employer social insurance contributions and benefits—labor’s share has shown very little variation. By this measure, labor’s share of national income has averaged 70.5 percent over the past 50 years and has remained within a narrow range of that average

For Discussion. Is this consistent with my claim that "If employers bear the cost of health insurance, then I'm the Easter Bunny"?

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CATEGORIES: Labor Market

COMMENTS (7 to date)
Tom writes:

Is this consistent with my claim that "If employers bear the cost of health insurance, then I'm the Easter Bunny"?Absolutely.

David Thomson writes:

Gosh, Arnold Kling agrees with me. That makes him a brilliant man. An employer never pays for one’s health insurance. If for instance, the health insurance costs the employer $5,000 annually---then you will simply be paid an equally lesser hourly rate or salary. What is so difficult to understand? This is merely basic economics 101.

I’m utterly convinced that we will never get health care cost under control unless people directly feel the economic pinch. The con game that the employer pays for their health insurance discourages then from facing reality. The quicker that the employer is removed from the situation, the better things will be.

Lawrance George Lux writes:

The Employee does bear the cost of health insurance, but it is a reduced cost, due to the Employer's ability to get Group rates--possibly disappearing.

This is not the fundamental question though. Why are health care costs continuing to rise? The health care industry should be employing Economies of Scale, with lessened cost for technology, drug development, and higher levels of Patients per health care worker. Reality says that all three factors are heading in the opposite direction. The reason for this is, under the current health care system, it is more profitable to the health care industry to utilize monopoly position. lgl

Jervis Ninehammer writes:

Health care is an extremely inefficient part of the economy. Rent seeking of one form or another accounts for much of the inefficiency. Doctors who work on a fee-for-service basis typically charge 60% less. Also, Americans are flying to India to have medical procedures done. At some point the health care system will choke on its own inefficiency.

Mathias writes:

Anyone who has negotiated a collective bargaining agreement knows that there is no relation between how much an employer pays for group health insurance and the wage rates

John Thacker writes:

Well, any discussion of the increasing cost of health care is incomplete without noting that it's hardly the same health care it used to be. We're paying more, sure, but for a superior product. Even compared to 10 or 20 years ago, many powerful techniques, like bone marrow transplants, are commonplace when they were rare or nonexistant before.

Of course, since many of the recent advances and treatment often cost extremely high sums of money in exchange for only a few extra months of life when in terminal illness, it is possible to argue that such spending is inefficient. However, considering the massive demand for those extras months, I'm not so sure. (This of course is one of those areas for happiness researchers to note-- if all our sick relatives died a few months or years earlier because modern treatments didn't yet exist, we would have to accept and get over it, and would likely be as happy. I don't take this as an argument to not develop better health care.)

Rob writes:
Is this consistent with my claim that "If employers bear the cost of health insurance, then I'm the Easter Bunny"?
Mandatory employer provided health care is essentially a tax charged to employers for consuming labor. As such, I would imagine that the amount paid for by the laborer vs. by the employer should be based upon the elasticity of the labor supply and demand curves. If the demand for labor were very inelastic compared with supply, then employers would bear a big brunt of the cost. If, however, the supply were very inelastic compared with the demand, then the converse would be true.
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