Whenever income inequality comes up in discussions, someone inevitably cite stagnant real wages since about the 1980’s (that is, wages adjusted for inflation are largely unchanged over the past 30+ years). This certainly is correct. But, when determining an employee’s compensation, wages are only one aspect of it. There are also benefits (health care, paid leave, vacation time, etc). Putting it mathematically:
TC = W+B
TC = Total Compensation
W = Wages
B = Benefits
Real total compensation has been rising. Given that the total is rising and one aspect (wages) is stagnant, this would suggest benefits are increasing as a share of total compensation. In fact, this has been happening. US government data (as reported by the Kaiser Foundation) shows wages’ share is falling (see Figure 2). The Heritage Foundation confirms this trend.
Looking at this data, it is likely real wages up to this point were stagnant because of increasing benefits. So, what does that mean for real wages going forward?
I postulate that, as more and more benefits increase (and indeed, some become mandatory), we will likely see real wages remain stagnant, and possibly even decline. Should my hypothesis be correct, it could have dire consequences for employee policy prescriptions: programs like Obamacare, or mandatory parental leave, could actually increase income inequality for workers. These kinds of programs could actually harm workers by reducing their monetary take-home pay.
Stagnant real wages may be the new normal.