For the past few years, some economists have claims that increases in income inequality are due to increased cost of employee benefits such as health insurance. For instance, let’s say that health insurance cost $10,000 per worker. Workers with a wage of $20,000 have total compensation of $30,000 including benefits, and workers with wages of $100,000 have total compensation of $110,000. Thus, the ratio of wages in this scenarios is 5x.
If the cost of health insurance increases so that total employee benefits now cost $20,000 but total compensation does not change, then the first worker will have a wage of $10,000 and the second will have a take-home wage of $90,000, a ratio of 9x.
However, this trend in a larger share of compensation being paid in the form of employee benefits may be reversing in recent years. The N.Y. Times writes:
Kaiser, a health policy research group that conducts a yearly survey of employer health benefits, calculates that deductibles have risen more than six times faster than workers’ earnings since 2010
HT: Marginal Revolution.
interesting. FYI, you’re missing a 0 in the first paragraph. Should be $100,000 instead of $10,000.
Good catch. Now updated.