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Saturday, November 26th 2005

Median Wages & Healthcare

From an interesting article about the median wage as a metric of growth and productivity:

So why have median wages been stagnating even though productivity began increasing in the 1990s? Two reasons: increasing labour supply, and increasing costs for benefits. While median wages have stagnated, total compensation hasn’t. In essence, workers have been consuming all of their income increases as health care.

Note my complete lack of training on this, and many other, subjects. However, the article seems to make some assumptions, and maybe these are classic macroeconomic things, that I have trouble with. There’s an assumption that increased production necessarily lead to increased median wages for growth.

This may be symantical but shouldn’t the view be more of from the other direction? Income inequality but the belief in the possibility of wage increases are necessary for increases in productivity. I guess my concern is why this post even seems to entertain the idea that decreasing income disparities has inherent benefits.

Making the country as a whole poorer in order to reduce income inequality doesn’t sound to me like a good idea. I realize that many liberal commentators claim that they can do this without sacrificing growth. But I don’t see how.

This post seems to imply IF you could reduce the inequality without making the country poorer it would be worth it. That doesn’t seem clear to me. I’m not exactly sure of the correlation between income inequality and productivity, and I’m sure there’s disagreement over this amongst economists, but there seems to be a point in which income disparity is so great it actually decreases productivity.

Maybe all this anger against healthcare costs is one representation of a decreasing belief in the American Dream; in one’s ability, through increased productivity to better one’s income. Why would this be? I’m just throwing stuff out there but people may respond better to increases in actual wage, which has failed to keep up with productivity increases apparently, rather than total compensation, including increases in healthcare spending on employees.

If this is the case then is there an argument that reducing healthcare costs –> leads to decreased spending on non-income compensation –> leads to an increase in median wages –> leads to increased productivity and better economic growth?

Even if that is the case I don’t think government has a place trying to enforce it. This may be the eventual direction the market leads healthcare, the fear is it will be such a slow reaction that the economy and people’s health will suffer through the transition, but it is still not the place of government to engage in over regulation…such efforts have ways of backfiring.

But more deeply, I don’t see either of these metrics [GDP & Median Wage] as a very good guide to policy, because I don’t believe that there is very much the government can do to influence them, for good or ill.