The Corner

The Link Between Benefits and Take-Home Pay

The New York Times reported this week that part of the reason why wage growth has been slow is that benefit costs account for a greater share of overall compensation:

The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27 percent in 2000, federal data show.

The article explains that health insurance costs only account about one-third of the increase in benefit costs, and other telecommuting and increases in flexibility aren’t included in these estimates, which means that really the trend is more pronounced than these statistics suggest. Other data shows that the share of employers offering paid maternity and paternity leave continues to increase.

This not only shows that overall compensation is growing more quickly than can be gleaned just in wage data (a point that has also been made by the Council of Economic Advisers), but also that there is a trade-off between greater benefits and take-home pay.

That’s a point that’s often short-changed in discussions about government regulation and benefit mandates–particularly when related to leave policies. Mandating that employers must all provide employees with a certain number of paid sick days or weeks of family leave creates a cost for employers. Employers have to keep track of leave, pay replacement workers or shift work to other employees, and still pay the employees who aren’t at work. Employers have to budget for those costs, and higher benefit expenses mean there will be less left for regular pay.

Many workers appreciate these benefits as much as they would more dollars in their paychecks. But not everyone does. Certainly people’s preference for benefits varies based on their life circumstances.

This is why government should allow companies to decide on their own what is the right mix of benefits and pay to attract and retain the workers they want, rather than making sweeping rules for what all compensation packages must include or creating government programs that displace the wide variety of compensation arrangements that companies offer.

Carrie Lukas — Carrie Lukas is the president of the Independent Women’s Forum.

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