How Rising Health Costs Slow Wage Growth

By and / 3.5.2012

How Rising Health Costs Slow Wage GrowthMost Americans are painfully aware that their health care premiums are rising faster than other necessities of life. Many also know that their earnings are growing slowly or not at all, despite apparent increases in worker productivity. These problems have been widely reported, but are seldom linked.

Yet they are directly connected. The costs of health benefits has gotten so large in recent years, and has been growing so fast, that they are now contributing to the slowdown in workers’ pay and income growth. In economic terms, more of the productivity generated by each worker is being used to pay their health insurance premiums, so less gets paid out in wages.

This shift in compensation helps to explain a mystery that has puzzled economists for nearly a decade: Why have workers’ wages stagnated as their productivity has been increasing? In theory, the two are supposed to rise in tandem.

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