Employee Benefits and the New Economy: A Proposal for Reform

Data cited are drawn from U.S. Bureau of Labor Statistics, Employee Benefits in Medium-to-Large Firms, 1988, bulletin 2336 (Washington, D.C.: GPO, 1989), p. 3; U.S. Bureau of the Census, Pensions: Worker Coverage and Retirement Income, 1984, Current Population Series P-70, no. 12 (Washington, D.C.: GPO, 1987), p. 2.

Apart from arguments that social insurance is simply “a good thing to encourage,” there is a more conservative argument that individuals without it end up receiving de facto coverage from a variety of tax-supported programs.

Those who follow the compensation field will recognize that these hypothetical events accord with recent trends.

An earlier version of this article, available from the author, provides detailed footnotes to the references supporting this section.

More detail on the economic trends cited below can be found in Mitchell Daniel J.B. , “Wage Pressures and Labor Shortages: The 1960s and 1980s,” Brookings Papers on Economic Activity, 2 (1989): 191–231; Jacoby Sanford M. Mitchell Daniel J.B. , “Sticky Stories: Economic Explanations of Employment and Wage Rigidity,” American Economic Review, 80 (May 1990): 33–37.

Belous Richard S. , The Contingent Economy: The Growth of the Temporary, Part-Time and Subcontracted Workforce (Washington, D.C.: National Planning Association, 1989).

Gustman Alan L. Steinmeier Thomas L. , “The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction,” working paper no. 3086, National Bureau of Economic Research, 1989.

Bureau of National Affairs, Inc., “Effective Health Cost Containment Strategies Implemented by Few Employers, HR Survey Finds,” Daily Labor Report, June 26, 1990, pp. A2–A3.

Perhaps the most obvious piece of evidence is the long-run tendency of real compensation (including benefits) and productivity to move in tandem. We expect real pay to move with productivity. If benefits form part of pay, they should substitute for wages leaving the relationship unaltered. The pay-productivity relationship was somewhat distorted in the late 1970s and early 1980s by certain upward biases in the Consumer Price Index. But if real consumption is measured using the same nonfarm business deflator used to obtain the productivity measure, then real compensation per hour rose at a 1.6% annual rate during 1960–89 versus a nearly identical 1.7% for productivity.

The issue here is not the validity of the efficiency wage concept in the abstract but its application to pensions and other benefits. References to the efficiency wage model can be found in Akerlof George A. Yellen Janet , eds., Efficiency Wage Models of the Labor Market (New York, NY: Cambridge University Press, 1986); Stiglitz Joseph E. , “The Causes and Consequences of the Dependence of Quality on Price,” Journal of Economic Literature, 25 (March 1987): 1–48.

Lacocca Lee , Talking Straight (New York, NY: Bantam Books, 1988), p. 295; Steinbrook Robert , “The Times Poll: Majority Favors Reform of U.S. Health Care System,” Los Angeles Times, February 4, 1990, pp. A1, A26.

U.S. Bureau of Labor Statistics, Employee Benefits, 1988, op. cit., p. 91.