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Seeds of Hope for Higher Wages

Morgan Housel
September 23, 2013

"Real Median Wages Haven't Grown for Over a Decade."

I see headlines like this a lot. You probably do, too. The latest came from the Bureau of Labor Statistics last week. Median household wages adjusted for inflation were lower last year than they were in 2000. "No wonder so few Americans seem to think their economy is in recovery: They keep getting poorer," Mark Gongloff of the Huffington Post wrote.

But if you're an employer, you know there's another side to the story. Total real compensation costs grew nearly as much in the last decade as they did in the previous one -- up nearly 10% since 2000. During a time when real wages declined, real compensation grew. 

What explains the difference? Health insurance premiums, and basically nothing else:

Source: Bureau of Labor Statistics.

Since peaking in 2000, wages as a percentage of compensation have declined by 3 percentage points, and employer-paid health insurance premiums increased 2.5 percentage points. The average employees actually received a raise over the last decade. It just came in the form of higher insurance premiums.

But here's what I find interesting: Health care spending growth is at a 50-year low. The share of the economy devoted to health care has been flat for the last three years. Some of that is because of a weak economy, but the trend actually began before the recession started. As Harvard health economist David Cutler said last year, "The recession just doesn't account