Many economists have noted that wage growth has not kept up with overall economic growth over the past few decades. We observe widening wage inequality since the 1970s. Are workers getting poorer relative to the owners of capital? Is a communist revolution needed to equalize the playing field?
Economist Martin Feldstein thinks not.
“Feldstein concludes that…measurement mistakes have led some analysts to conclude that the rise in labor income has not kept up with the growth in productivity. The first is a focus on wages rather than total compensation: because of the rise in fringe benefits and other non-cash payments [such as health insurance], wages have not risen as rapidly as total compensation. Feldstein feels it is important to compare the productivity rise with the increase in total compensation rather than the increase in the narrower measure of just wages and salaries.”
Since health insurance costs have been increasing more than inflation over time, overall employee compensation has risen at about historical rates. Of the compensation workers receive, however, a larger and larger percentage is going towards health insurance. This is especially true for low income workers. This is a point I made in a post in January 2007.
- Feldstein, Martin (2008) “Did Wages Reflect Growth in Productivity” NBER WP #13953.