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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 per year.

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.

The table shows the average cost per hour to a private industry employer of hiring a worker, including both wage costs and various benefits.

Reason March 1987 March 1992
Total hourly compensation $13.42
Wages and salaries $9.83
Paid leave


Supplemental pay


Insurance $0.72


Retirement and savings $0.48
Legally required benefits $1.13
Other benefits $0.02

Source: U.S. Department of Labor, "Employment Cost Indexes and Levels, 1975-1992," November 1992, Tables 16 and 51.

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