I feel as though I am constantly reading articles regarding the stagnant wages of American (and in particular middle class/poor) workers. However I have also seen numerous articles regarding massive annual growth rates in healthcare spending. It is my understanding that most Americans receive their healthcare through their employer (with the employer typically picking up the majority of of the costs). This creates something of a logical disconnect for me, so my question is this:

1. Do most statistics/reports of stagnant wages not take into account employer benefits such as healthcare (or employee 410k matching etc.)? Thereby painting a picture of stagnant wages when in actuality total compensation (wages + benefits) has not been stagnant?

2. Or do they take that into account, and non-benefit wage growth has actually been less than inflation, which taking into account an assumed high singe digit, low double digit growth rate in employee benefits, results in stagnant total wage/compensation?

There is a measure of wage growth that includes the cost of fringe benefits, such as health insurance. This is called compensation per hour. There is also a measure that does not include fringe benefits, which is just called wages. Because health care spending has soared, the “fringe” benefits can amount to quite a lot. Thus, the two measures have diverged, with compensation going up more than wages.

Suppose that my salary is $50,000 a year and the employer contributes $15,000 to my health insurance. The good news for me is that the health insurance benefits are not taxed. The bad news is that I might value the health insurance at much less than $15,000.

So do workers value health insurance at something like its dollar cost, or do they not? This becomes very interesting when you try to calculate a real wage, which is the nominal wage adjusted for price changes. If you look at wages excluding fringe benefits, then you are taking soaring health care costs out of the numerator. If you then use the Consumer Price Index to convert from a nominal wage to a real wage, you are including soaring health care costs in the denominator. That strikes me as an overly pessimistic way to calculate real wages.

If workers care about health care expenses, then you should look at their total compensation. If they do not care about health care expenses, then you should use a price index that just includes those goods and services that they do care about.

I have to say that when this issues is discussed in the press and in blogs, what you see is at best lacking in nuance and at worst a deliberate attempt to manipulate data to create a distorted point of view. I should add that if somebody insists on not including fringe benefits in their calculations, you might ask them why then one should consider employer-provided health insurance a good thing.