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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 . . .

>

Source:
It’s the Year to Keep an Eye on Paychecks
David Leonhardt
NYT, January 3, 2007
http://www.nytimes.com/2007/01/03/business/03leonhardt.html

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

Wednesday, January 03, 2007 | 06:51 AM | Permalink | Comments (10) | TrackBack (1)
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Comments

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.

Posted by: bk | Jan 3, 2007 9:53:46 AM