The benefits gap between high and low earners is widening
“I SEE PATIENTS every day who are going to have babies because they work at Facebook,” says Peter Klatsky of Spring Fertility clinic in Silicon Valley. Tech giants now include egg-freezing and in vitro fertilisation in their employees’ health coverage. But even as high-earning Americans have the cost of making a baby covered by their companies, many low earners cannot get paid leave to look after theirs.
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Since the end of the first world war, American workers have seen a steady rise in benefits. According to the Bureau of Economic Analysis, “supplements” to wages, which include most of today’s benefits but exclude performance bonuses, rose from 1.4% of total compensation in 1917 to 17.5% in 2000. Using a broader measure that includes performance bonuses as well as paid leave, overtime, health insurance and contributions to retirement plans, that share has risen further since: from 27% of compensation in 2000 to 32% now.
When growth in wages slowed after the financial crisis, so did growth in benefits. Another trend also became apparent: a widening gap between rich and poor. Workers at the tenth percentile for wages saw benefits fall by around 2% in real terms between 2009 and 2018. Those at the 90th percentile saw a rise of 17% (see chart).
Wage growth has picked up recently as the labour market has tightened. Figures released on November 2nd showed that 250,000 jobs were added across America during October, and that average wages grew at an annual rate of 3.1%, the fastest since the financial crisis. By the end of the summer, there were over a million more unfilled positions than jobless Americans.
But growth in benefits for lower earners has remained sluggish. One reason is that few get employer-provided health insurance, which has accounted for about a third of the increasing cost of employers’ benefits since 2000. Just one in four of those in the bottom 25% by earnings are covered, compared with three in four in the top 25%.Those working in the gig economy lose out on conventional benefits such as pension contributions. Meanwhile, at the top end of the labour market, bonuses are increasingly being used to retain the most prized workers. Aon Hewitt, a human-resources consultancy, finds that over four decades bonuses have grown to a record high, reaching 12.8% of payroll in 2014.
The gap is likely to be wider still when intangible benefits are included. The share of Fortune 1,000 companies with shorter hours on “summer Fridays” has doubled, to 42%, since 2015. Salesforce, a software giant, gives employees several paid days off per year for volunteering, and $1,000 to donate to a cause of their choice. Since such perks are more common at tech firms and in offices, low-paid workers often miss out. Unionised workers, who have more leverage with employers, choose to receive a notably larger share of their compensation as benefits than non-unionised ones. In a survey of American workers by FRACTL, a content-marketing firm, 88% said they would sacrifice a higher wage for better health insurance and more flexible hours.
The hope for low earners lies in the fact that they are often the last to gain from expansions. As the labour market has tightened, their wage growth has accelerated sharply. They may soon start to feel the benefit beyond their pay cheques, too.