At Work

Yes you have been receiving good pay raises … and you didn’t even know it. 

Who says you haven’t had a pay raise? Not only have you been getting raises each year, but a good portion of each raise has been tax-free or tax-differed. This also goes to some extent for those few Americans lucky to have employer-provided benefits in retirement.

All those raises have a name; employee benefits, especially health care benefits and all forms of retirement benefits.

man_decreasing_net_income_lg_clrGranted you can’t buy a lottery ticket or a new TV with that portion of your total compensation, but there is real value there which shouldn’t be overlooked. And, you better hope Congress continues to look the other way regarding the tax-free part of this compensation  because it is the single biggest revenue loser for the government.

… real wages have been little changed for more than 46 years, increasing a minuscule 2.7 percent during that period.

 During the same 46-plus years, this (total compensation) rose 61 percent. Total comp includes wages, various worker benefits such as matching 401(k) contributions, health insurance, disability insurance, paid vacation and leave plus any employer-paid taxes. “These benefits are now a substantial part of the cost of an employee – and they appear to be growing,” according to the Federal Reserve Bank of St. Louis, which compiled the data.

Source: Health-Care Costs Ate Your Pay Raises – Bloomberg View

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7 replies »

  1. Thanks for the response Wayne. I’ve been in the workforce since 1965 and think the economic optimism of the past is largely spent. The top 10 to 15% will do very well, the middle 50% will muddle through with less, and the bottom 40% will be more or less out of the work force.

    Yesterday I read of a just published book, “Men Without Work’, by Nicholas Eberstadt. Work force participation is currently about what it was in 1940 at the tail end of the Depression. Official unemployment figures do not capture the huge number not working and not looking for work. And the situation is not improving.

    Good luck to you and your son.

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  2. This comment is for Dwayne: If you don’t mind answering, in what part of the country do you live? Here in the Seattle area, blue-collar union jobs, particularly in the building trades and Longshoremen’s Union (admittedly a perennial outlier) have more than kept up with inflation. I think the Boeing union workers have not done as well as they have in previous decades, but are still ahead of inflation. Union teachers have not done as well, nor public sector white collar unions. But municipal police and fire fighters on the other hand are way ahead of others, as they always have.

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    • Vince, I live in South Jersey and we are influenced by the wages in Philadelphia, PA. In New Jersey the public unions do fairly well. New hires benefits were changed to more inline with the private sector starting back about 20 years ago. The teachers still have overly generous benefits and Governor Christy has been battling them for his two terms. Although the teachers had very generous contracts and benefits in the past that most private sector employees can only dream about, the teachers are being screwed. The State has underfunded the teacher’s pension plan and Governor Christy has out right failed to make State payments into the pension plan for years that it will be a major crisis that the taxpayers will end up paying more in the end.

      From what I understand most public unions now have medical insurance co-pays and or pay a small percentage to their medical insurance premiums now. I know that fire fighters now get a smaller pension from the past but they now can contribute to a 401K style plan (whatever the number is for public employees) and I assume that is how the rest of the public unions pension plans are now working.

      I am in the IBEW working for a utility. Our medical is based on 20/80% split of actual premiums. We have a two tiered benefit plan that split the benefits in 1996. Those hired before 1996 got a defined pension and could earn medical in retirement. Those hired after 1996 have a contribution style pension and no retiree medical. It is very hard to build wealth while paying so much out of pocket for your pension and medical. Employers may be giving behind the scene “raises” through paying for the “increase” in benefit costs but our new hires do not get the cash in their pocket to match the required corresponding increase in savings that they should be doing to match the future added costs in retirement. So in that sense they are getting less of a raise while still paying more because of the 20/80% split.

      I think we have too many benefit managers and financial advisers that are living in the past because they do not have any good data of what is going to happen. Very few people will have pensions and medical in retirement in the future. I had to save for about 1/3 of my retirement income only. The new hires have to save 2/3 to 100% for their retirement and medical. The new hires do not have any examples of how their retirement will work whereas I can look at current retirees on pensions for life and know how things work. I know how much my income will be for life from my pension and can guess conservatively what my 401K will do. The new hires can only guess how much there 401ks might be and even MetLife is saying market returns of 6% not 8% that is so often quote here. When I started working, 5% withdraw was “advised” and now it is 4% and I even hear of one advising 3% withdraw which means you must save more but wages have not even matched the increase of the medical premiums.

      Now that I rambled on here I just want to point out that I do not think that current pension and benefits plans in America are right or wrong but it is what we have. The fact of the matter is this great globalization of the world’s work force has and will cause America’s wages to continue to lower until it reaches the level of the lowest wage earner in the world. That is why America keeps shipping jobs overseas. Isolationism will not work so we all need to just accept the fact that US wages will continue to lower or stay the same until the rest of the world catches up and there are a lot of counties with no benefits.

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  3. The time period addressed is 46 years, from 1970 to 2016. Well, ahem, things have changed in benefits in the past ten years. Healthcare premiums and co-pays have risen substantially. Employers contributions to 401k plans are decreasing, not increasing. Nor has paid vacation increased in the past ten years.

    There are two stories here, not one. From 1970 to around 2005, yes, employee benefits increased. From 2005 to the present, they have not.

    Mr. Quinn, as you have noted many times, pension costs have been transferred increasingly from the employer to the employee. Defined benefit pension plans are almost a thing of the past, with the large exception being public employers, i.e., federal, state and city governments.

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    • All you said does not really change the point that the so-called hidden paycheck increases for many workers even when cash doesn’t. Overall generosity of benefits have certainly decreased, but even with that, anything provided on a defined benefit basis is increasing.

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  4. I get it, but it hard to convince some people that their employer is paying more on their behalf when their out of pocket medical expenses have gone up sometimes at a rate of a few hundred dollars more a month for less coverage. In some cases the less coverage part is to prevent the 40% Cadillac tax that is coming. It is even harder if you do not get to “use” your benefits which is what the company wants to keep costs low. With everything else going up it “seems” like wage deflation since you have less in your pocket to pay your bills.

    You want to hear screaming, wait until gasoline goes back to $4 / gal. I have lived through three periods of very high gas prices and that practically stops all other spending. How will they pay for gas to get to work to earn money to pay their premiums?

    There may be a match for contribution pension plan by an employer but it does not equal the old pension plans. This is more money out of their pocket that you or I did not lose.

    My son is working out of a union hall and has to pay for his own benefits. He is currently trying for another job of less skill value but has benefits so he has finally got it.

    The sad part is that there are union trades that are having less new members for this reason. Contractors at my plant cannot find enough union welders to bid on jobs. All the push was for college and the lack of benefits are hurting “A” local unions. To the “A” locals members the benefits are not hidden.

    Now I am not saying that the math doesn’t work. I agree that everybody is paying more but still the employee has less money in his pocket today.

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  5. It is hard to share this post with some folks who have lost their jobs, benefits and their pension. It is comparable to opening a discussion with a dihard chronic complainer at a comedy festival. The fire and brimstone is immediate and painful to hear.

    Not everyone sees life as pleasure full as some of us have.

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