Saturday, September 5, 2009

Government Wage Statistics Miss Reduction of Employee Benefits

Many blogs are incorrectly citing the recent government statistic of an increase in average hourly wages as a sign that employers are paying more for labor and that workers got salary increases. The government numbers on wages, however, do not accurately reflect the effects of a reduction in benefits on total compensation.

From definition of average hourly wage from BLS:
"Employee contributions for old-age, survivors, and disability insurance (OASDI), health insurance, unemployment insurance, workers’ compensation, and private pensions are considered pay; employer contributions to these benefits, however, are not [emphasis added]. Money withheld for income taxes and union dues is counted as pay."

If an employer decreases benefits or switches the cost to the employee, then the government does not record the loss of benefits as a decrease in compensation.

Therefore, if an employer stops paying a $100 per week for health insurance for an employee and if in its place the employer gives the employee a $50 per week raise, then the government views the net loss as a wage increase. It is really a loss of total wages to the employee, as the employee must now pay more, or all, for his share of health insurance.

It is very likely in this recession, benefits that are not counted as wages, such as pension or health, were reduced by employers. The government numbers miss this change.

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