To the Editor:
Benjamin Domenech makes some interesting points about the rising costs of noncash work benefits to employers [“The Truth About Wage Stagnation,” March]. The corollary, though—that expected or mandated benefits are the real (or at least the primary) reason that employee wages (and by extension, well-being) stagnates—seems problematic, and it would be interesting to hear more about that.
For starters, Mr. Domenech seems correct that the rising costs of these benefits hit employers and by extension, employees. However, by and large it is not the mandates themselves that are causing cost increases, but rather the costs of the benefit-covering services themselves—most notably health care. If employers did not cover those costs, employees would have to do so directly, or go without. Unless one subscribes to the view that people should make do without such frivolities as health care, or child care so they can actually work, it is hard to see how employees would see their circumstances improve by shifting noncash benefits such as health care to cash (even if this occurred on a one-to-one basis, which would be questionable).
So the reality seems to remain that the lot of employees isn’t improving in real terms, and it wouldn’t be improving even if they received direct cash instead of benefits. Skyrocketing costs of basic needs present one of the key policy challenges of our time. Perhaps they are beyond the scope of this piece. But in light of those costs, it doesn’t seem much of an answer to say “stop the mandates, and employees will benefit,” does it? And how can either party deliver real benefits to the middle class by shifting the payment responsibility between employee and employer, when the real problem is the magnitude of the costs themselves (particularly relative to what they once were)?
Beyond that, while benefits and regulatory burdens increase business costs, it’s far from clear that those costs approach the impact, from a wage perspective, of the basic market dynamic of an effective labor surplus. (Today, with productivity growth and other factors, there are more qualified workers than jobs, even in skilled sectors.) One would expect that to have a lot more to do with stagnating wages than increased benefit costs—if supply exceeds demand, prices (that is, wages) just won’t rise, will they? As indeed they have not, even as profits have soared across a broad spectrum of enterprises.
Nor does the piece address the point that salaries at the top have soared while salaries below senior management have not. Hence, benefit costs notwithstanding, there is money available for wages to go up. That money just is not really filtering down. Worse, with labor supply so much higher than demand, it’s hard to see that changing much, even if benefit costs and regulatory burdens were reduced. And without such a change, the fundamental tenet that enterprise prosperity will significantly lift the fortunes of all, rather than just the fortunes of the most senior management, is called into question. Recent history highlights that point; the American private sector has done quite well in recent years, as has executive management—but the general workforce, even the skilled workforce, not so much. If there is a reason that would change as we travel further down the same path, with or without regulatory easing, it is by no means an obvious one.
For my money, while it is certainly worthwhile to reduce mandates and regulatory burdens that are out of line with the policy upsides they provide, it doesn’t really hit the core of the problem in terms of labor supply/demand and enterprise-benefit allocation. But perhaps I am missing something.
To the Editor:
I found Mr. Domenech’s article very well done, well reasoned, and informative. I don’t disagree with his points. But I do think he is overlooking an even bigger factor that affects wage stagnation: the death of competition. Across the various economic sectors, companies have evolved into cartels, creating safe harbors that insulate them from both competition and antitrust rules. It is a natural trend that started after World War II and is now the standard rather than the exception: Look at the big banks, major media, and health-care conglomerates.
The big five banks, after buying out or crushing many local and regional banks, now get the largest share of retail, walk-in banking in cities and towns across the country. They are all bigger than they were eight years ago when their “too big to fail” status contributed mightily to the financial crisis. They get a special discount at the Fed window and just recently successfully beat back an attempt to reintroduce a watered-down Glass-Steagall Act to rein in some of the excesses. The same things are happening in other industries, too.
The point is, when you have your business sector “cornered,” you don’t need to bid up salaries to hire away people from your rivals—if you even have rivals anymore—which means few new jobs.
Benjamin Domenech writes:
I appreciate Mr. Edmondson’s response to my piece. That said, I disagree with some of his conclusions regarding wage stagnation. Yes, rising costs are a problem, but a major part of the reason this problem exists is the force of government-mandated benefits. By funneling benefits through employers, you increase transaction costs, subsidize demand, and insulate consumers from price signals. We see this particularly in the health-care arena, where the subsidization of employer-sponsored health insurance and the problems of third-party payer form a particularly dangerous combination.
Mr. Edmondson raises the issue of labor supply and demand—a valid point. But at the moment, the United States is actually experiencing record job openings (and thus jobs demand) compared with low official unemployment and plummeting labor-force participation (i.e., limited supply). And yet wages remain steady, even though overall compensation is increasing. Clearly, something other than labor supply and demand is distorting the market.
As for noting that soaring salaries at the top have taken place simultaneously with wage stagnation at lower levels: Upon further inspection of studies on the topic, you will find this trend is largely isolated to large firms, not the vast majority of businesses. The inability of small businesses to raise wages for their workers is not, in my view, connected to the salaries of a smaller group of upper management at large firms.
My thanks as well to Mr. Joachim for his response, and I agree almost entirely with his letter. The death of competition—or more accurately, the ability of large firms to use the levers of government to insulate themselves from competition—is absolutely an overarching problem for the U.S. economy. That said, there is one additional point: This problem is most pronounced in sectors that are highly regulated—such as the big banks, telecoms, medical conglomerates, and the like. I do not believe this is a coincidence.