Wage Surge?

David Leonhardt, in today’s NYT column, It’s the Year to Keep an Eye on Paychecks:

"Before the present wage surge began, back in the fall, the country seemed to be on course for a serious debate about how to deal with rising inequality. Despite a solid economic expansion that started in late 2001, most families weren’t benefiting. Even the average raises for college graduates, who had done so well in the 1990s, fell behind inflation. Only the very rich — the Google and Goldman Sachs set — were doing well . . .

The trouble until the last few months was that inflation was unusually high. Now that it has settled back around 2 percent, not much below its average of the last decade, the current expansion is indeed benefiting most workers."

Whether you look at real or nominal wages, the missing ingredient are health care benefits. Even with the big drop in Gas/Oil/Energy — that’s a large part as to why Real Income spiked since September in the NYT chart below — the bigger issue for many wage earners have been Health Care costs.

Hospital, Drug, Medical Care and Medical Insurance costs have far outpaced inflation, rising between 10-15% a year. Many people are finding their wage gains — even nominal increases — fail to keep up with the increased costs of their medical benefits. Companies are raising deductibles, decreasing benefits and requiring increasing employee contributions to pick up more of the insurance costs.

These easily offset any nominal gains in wages. 

As we discussed right after the 2006 mid-term elections, was this exit poll: 

"More than 80 percent of voters in an exit poll, conducted for The Associated Press and television networks by Edison Media Research/Mitofsky International, said the economy was a very important or extremely important issue. That percentage was the highest for any issue, including Iraq and terrorism." 

Up until 2003, Energy prices had risen at rates far below inflation. They have finally caught up, and are both cheap on an absolute basis and even cheaper relative to what consumers pay in other countries. (Diet Coke costs more per gallon than Gasoline).

But Health Care remains expensive — its costs continue to grow:

CPI Ex Energy remains elevated, but . . .
Click for larger charts


CPI Ex Medical Care plummets to near nothing, while . . .


Hospital Care continues to rise 10-12%+ per year


Charts courtesy of Economagic, NYT


I didn’t come across a Medical Insurance data source, but we know the base premium has risen about 8-10% — but that is before we figure in how much deductibles and co-pays have gone up. It brings the total costs of insurance increases to somewhere between 15% – 20% per year. Reports of increases of 30% per year are increasing.

Real wage gains are in the eye of the beholder . . .


It’s the Year to Keep an Eye on Paychecks
David Leonhardt
NYT, January 3, 2007

Health care costs outpacing wages
Sharon Salyer 
The Daily Herald, Wednesday, December 27, 2006     http://www.heraldnet.com/stories/06/12/27/100loc_a1health001.cfm

Economagic Charts:

CPI: All items less energy   

CPI: All items less medical care

CPI: Hospital services

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What's been said:

Discussions found on the web:
  1. bk commented on Jan 3

    I find it interesting – and extremely bothersome – that two areas of the economy with the highest rate of inflation, health care and education [college], are two of the areas with the highest level of government involvement [federal & state].

    I recognize that correlation is not causation, but I am certainly convinced that government [over]involvement is a big part of the problem.

  2. M.Z. Forrest commented on Jan 3

    And you are wrong bk. It is a phenomena already explained by Keynes. Keynes observed in England that as production moved to England’s possessions, professional services saw greater wage pressures. It is a simple case of leverage. The laborer’s ability to demand increased wages in a free trade environment so that they can purchase professional services is adversely impacted. The professional on the other hand does not face such competition.

  3. Teddy commented on Jan 3

    My daughter just got her bill from the MD, UP 16% from the exact same procedure 3 months earlier. At this point, the procedure can’t be outsourced. The plane fare is too expensive.

  4. casey commented on Jan 3

    BCBS-VT 36% Increase Shocking
    “The 36 percent rate increase Blue Cross Blue Shield wanted from the association of municipal officials was tied to the specific claims experience of those members.” He gave examples.

    And, “Hospitals also increased charges to private insurers such as Blue Cross Blue Shield because a year ago the state shaved $18 million from its payments for hospitalized Medicaid patients, Keller said. Costs the state fails to cover are shifted to private insurers that pass the costs along in higher premiums.”

    Speaking of wages not keeping up, I assume all of you have calculated the true cost to own a car.

  5. Norman commented on Jan 3

    Wouldn’t it be nice if our economists and the media presented the data of wages PLUS benefits received instead of just wages. Hum, I wonder why they don’t do that?

  6. bk commented on Jan 3

    M.Z. Forrest,

    Did I say anything about wages? Gee, I must have missed that.

    No, I checked…I said “inflation”.

  7. seamus commented on Jan 3

    Norman, if health care costs increase 20% a year, and my company’s health insurance subsidy only increases 10% every year, is my compensation really increasing? Yes, they’re paying more for my health insurance, but my paycheck is actually smaller after my premium is deducted. Health insurance is a great distortion in calculating benefits.

  8. M.Z. Forrest commented on Jan 3


    80% of the cost of professional services is wages/benefits/taxes-on-the-same. Do you think 3-hole punches are driving up costs and hence prices? Where do you think the expenses are in medical services and education?

    I’m assuming you thought you were particularly clever with your comment. Instead of using someone else’s talking points, get a clue before you put fingers to keyboard.

  9. wunsacon commented on Jan 5

    The cost of anything that (relatively speaking) can NOT be offshored (e.g., health care, education) or already HAS been offshored for a long time (e.g., oil production) will grow along with the money supply.

    Anyone in a profession that can be offshored will experience greater competition. Those wages will grow more slowly than the money supply (or not at all or go negative).

  10. The Big Picture commented on Jan 17

    The Sordid Truth About Inflation

    With PPI out today, and CPI out tomorrow, inflation will be on Trader’s minds. Now is as good a time as any to update our thinking on Inflation. Its been quite a while since we last railed against the absurdity of inflation ex-inflation — the reportin…

  11. New York Real Estate commented on Feb 22

    I’ve also noticed that doctor’s fee’s are increasing.. wages almost have to increase. Setting a broken arm (children, gotta love them), as gone up almost $100 since last year alone.

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