All Commentary
Thursday, September 5, 2019

Are Inequality Stats Skewed by Rising Health Care Costs?

The total cost of an individual's employment to the employer has greatly increased, even if their productivity has remained flat.

What sorts of benefits do you receive from your employer that aren’t included in your take-home pay or on your income tax returns? We don’t all have “free” cafeterias and laundry and fitness facilities, like Google. If you do have these kinds of amenities, how do you assess their value in terms of your overall compensation? Setting these cultural amenities aside for now*, probably most of us have health care that is covered, at least in part, by our employers. 

In this week’s EconTalk episode, the Mercatus Center’s Mark Warshawsky talks about this “perk” of employment, and how it may be drastically affecting the way we look at income inequality. While compensation packages have long been greater than the take-home pay to which they’re attached, they’ve also long been much less visible. But a new wrinkle has been added in recent years.

Warshawsky notes that the cost of health insurance to employers has tripled in just the last fifteen years. This means that the total cost of an individual’s employment to the employer has greatly increased, even if their productivity has remained flat. This means lower-income workers are receiving a greater proportion of their total compensation in the form of benefits.

Warshawsky argues that when income inequality is being analyzed, studies tend to focus on income data, or take-home pay, thereby overestimating, or at least distorting, the degree of inequality.

But how are we to shift from comparisons of income to comparisons of compensation? And what’s the best way to evaluate workers’ level of well-being? Tricky questions- both philosophically and politically. 

* One of host Russ Roberts’s biggest questions is the effect of mandating benefits- whether legislatively or culturally- for employees. There’s no such thing as a free lunch, after all.

Republished from the Library of Economics and Liberty


  • Amy Willis is a Liberty Fund Fellow Inc. in Indianapolis, IN. She is the Liaison for the Liberty Fund to the Library of Economics and Liberty or Econlib. She writes the EconTalk Podcast Listening Guides and contributes to Econ Talk Extras. She also works in the Liberty Fund conference program.