April 2, 1993
"So Quit Believing in the Benefits Fairy"
San Jose Mercury News
By Timothy Taylor
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ALTHOUGH THE economy stepped out of its doldrums in the middle of last year,
the unemployment rate remains stuck at 7 percent, down only half a percent since
last September. Just as bothersome, 90 percent of the new jobs created in February
were temporary or part-time.
So where are the permanent, full-time jobs?
Part of the answer is that rather than hiring new workers, businesses are driving
their current employees harder. For example, factory workers are working longer
weeks (41.5 hours) and more overtime (4.2 hours per week) than at any time since
the mid-1960s. If all businesses hired new workers instead of having anyone work
overtime, the number of unemployed could be cut by one- third.
While this combination of additional work but few additional jobs may seem
odd, it is actually a familiar characteristic of a turn in the business cycle.
At the start of any economic recovery, employers are hesitant to hire until they
develop confidence that growth is here to stay.
For example, when the economy bounced back from declining 2.2 percent in 1982
to grow by 3.9 percent in 1983, civilian employment increased by just 1.3 percent
in 1983. However, in 1984, once the recovery had a chance to take hold, the number
of civilian jobs grew by 4.1 percent.
If the economy continues to perk along and this historical pattern holds, employers
will start scaling back on the use of temporary and part-time workers later this
year, and start hiring more on a permanent, full-time basis.
But matters may not be this simple, because employers have another major reason
to hold off on hiring. In a variety of ways, President Clinton and Congress are
threatening that any company that hires a worker today may need to give that worker
a substantial raise in the near future. The raise won't come in the form of wages
or salary, but higher required benefits.
The table at left illustrates the growth of benefits in recent years. At first
glance, the 20 percent increase in total compensation over the five-year period
may look impressive, but these numbers are not adjusted for inflation, so that
increase is just about enough to offset an average inflation rate of 4 percent
The proportion of pay received in the form of wages and salaries shrunk between
1987 and 1992. The proportion received in the form of paid leave (vacations, holidays,
and sick leave) and in supplemental pay bonuses didn't change much. The proportion
employers set aside for retirement was actually declining.
But over the last few years, employers have been giving raises mainly by making
higher insurance payments on behalf of workers (especially for health insurance),
and by making higher legally required payments for Social Security and worker's
compensation. In fact, benefits have been rising faster than wages since the 1970s,
which is a main reason why average wages have barely kept pace with inflation
during that time.
One can hardly open a newspaper without stumbling across some additional way
that President Clinton and Congress seem poised to require businesses to provide
additional benefits to employees. What about requiring businesses to pay more
for health insurance? For family leave? For day care? All of these proposals mean
that if you hire an employee today, you may end up being required to pay new and
higher benefits in the future.
For every $7 that a typical employee earns in wages or salaries, the employer
is spending an additional $3 on benefits. At least some employees would probably
have preferred to see their wages rise in the last five years, rather than seeing
that money flow into health insurance and worker's compensation premiums. Others
might prefer a different mix of benefits, rather than having the government require
similar benefits for all.
Especially when money is tight for the government, it may seem attractive to
require businesses to provide various benefits. But calling employee benefits
a "social responsibility," or some other comforting locution, doesn't
make those benefits cheaper to provide.
Of course, temporary and part-time workers do receive much lower levels of
benefits. Workers who put in overtime don't need any extra health insurance or
worker's compensation payments to be made on their behalf. In addition, employers
can often reduce the benefits they need to pay by doing as much of their business
as possible on Third World soil. Finally, machines don't need health insurance,
Social Security, worker's comp, unemployment insurance, disability, sick days,
family leave, vacation or day care.
If you're worried about the creation of permanent, full-time jobs in the United
States, you have to be concerned about any rule that makes it more costly for
American employers to hire someone. If a new government social program -- say,
expanded health insurance or subsidized day care -- is important, we should pay
for it the old-fashioned way, by raising taxes or cutting other programs, rather
than by pretending that business can provide it for free.
|COMPENSATION AND BENEFITS
|The table shows the average cost per hour to a private industry
employer of hiring a worker, including both wage costs and various benefits.
|Total hourly compensation
|Wages and salaries
|Retirement and savings
Source: U.S. Department of Labor, "Employment Cost Indexes and Levels,
1975-1992," November 1992, Tables 16 and 51.
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