Bitter Medicine For Workers

Virtually all industrial nations have experienced rising income and wage inequality since the start of the 1980s. However, the U.S. seems to have been affected the most by this trend, which has been attributed to the negative impact of trade growth on the wages of low-skilled, poorly educated workers and the positive impact of changing technology on the earnings of the more educated.

In a new study in the New England Economic Review, economist Jane Sneddon Little of the Federal Reserve Bank of Boston argues that the trend toward income inequality in the U.S. is even more pronounced than generally understood. She notes that measures of inequality usually focus on wages and ignore changes in employer-sponsored health coverage. Yet such changes have had a disproportionately damaging effect on the compensation received by workers with relatively little education.

The chart above tells part of the story. In 1979, 87% of all male full-time year-round workers enjoyed job-related health benefits regardless of their educations. By 1992, the level of coverage had shrunk to just 54% among high school dropouts, compared with 75% for college graduates, adding another dimension to the gap between the rewards received by these groups.

If one looks only at the wages of workers with varying educational backgrounds who had health coverage in 1979 and 1992, the picture is even bleaker. Because health-insurance costs have soared since 1979 and because health care is a big part of the compensation packages of less-educated workers, their real take-home pay actually declined. Rising health-insurance costs had a far smaller impact on the salaries of highly skilled workers, which continued to rise.

"In no other high-income country," writes Little, "has the growing cost of health care contributed to rising earnings inequality as it has in the U.S."

    Before it's here, it's on the Bloomberg Terminal.