Lowest Wage Growth in 25 Years

According to the Labor Department wages grew at only 2.3% for the 12 months ending this past September. What makes this somewhat notable is that profits for corporations have been growing at a pretty substantial rate. Once inflation is factored in for wage growth real wages actually decline.

One of the big factors for the dismal growth rate of wages is the rapid growth in health care costs.

As health care costs have exploded, benefits paid to workers have accounted for a good portion of the growth in total compensation in recent years.


With their wages growing at an annual pace of 2.1 percent, union workers are barely keeping up with nonunion workers. The growth in benefit-spending for union workers snapped back to 4.1 percent in the past 12 months from 10.6 percent the year before.

One solution to this might appear to be some sort of government health care system such as Canada has. The problem is that while wages would likely rise (in competitive markets), those gains would likely be used to pay for increased taxes for the health program. Some have argued that there would be a substantial cost savings by such a switch, but I am far from convinced that such savings are possible while at the same time maintaining quality and quantity.

FILED UNDER: Economics and Business, , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. DL says:

    A health care system like Canada has? That is not a solution but a recipe for disaster!
    How about wresting our health care away from its union-bred birthplace in the hands of our bosses and buy it ourselves?

    How about serious tort reform in the health area?

    How about getting the government out of the business with its multi-layered bureaucracy that has added so much of the costs to it.

    It was the government medicare that started the health care costs to spiral well above inflation.

    Watch how quickly the prescription drugs in Canada will go up in price when copying their system will no longer subsidize their lower prices.

    Any one who believes that to be a solution, I assume will vote for Hillary to solve our “wage” problems.

  2. DL says:

    After rechecking your numbers and adding up the growth in total benifits to 6.2%-well above the inflation rate.

    This is anything but a bad growth, as any more just causes inflation to spiral out of control, and will come back to hurt us even more in the long run..

    How did we cause all this real-estate bubble stuff with such little growth in wages?

  3. LR says:

    “A health care system like Canada has? That is not a solution but a recipe for disaster!”

    So explain to me why, if Canada’s system is such a disaster, there is no groundswell to abandon it for our system? Last I heard, Canada was a representative democracy just like us.

    People gripe about the Canadian system to some degree, mostly because the government doesn’t always fund it completely, but there is no real grass roots movement to abandon it–the people reasonably agitate for better funding.

  4. Anderson says:

    The problem is that while wages would likely rise (in competitive markets), those gains would likely be used to pay for increased taxes for the health program

    Right, but those taxes could be distributed a lot more efficiently and fairly than healthcare costs are now distributed.

    See this interesting tidbit (Daniel Gross, via DeLong):

    Wal-Mart CEO Lee Scott channels Ted Kennedy, advocating a higher minimum wage out of enlightened self-interest. He finally realizes there’s a connection between the minimum wage failing to rise over the past ten years and Wal-Mart’s stock failing to rise over the past five years. Ann Zimmerman reports:… “Mr. Scott, noting that minimum wage hasn’t changed in almost a decade, described Wal-Mart’s core customer base as finding it increasingly difficult to afford basic necessities between paychecks. ‘We simply believe it is time for Congress to take a look at the minimm wage and other legislation that can help working families’.”

    The rising corporate profits you describe make it hard for me to credit that raising the wage would drive down employment, tho of course my economic IQ is a 2-digit number.

  5. Anderson says:

    Oh, and DL, I’m all for reasonable tort reform (as opposed to the kind we got in Mississippi).

    Litigation is a miserably inefficient way to police healthcare.

    What we need is a stronger regulatory regime … but oops, that would cost money too!

    Bottom line: DOCTORS SUCK AT POLICING THEIR OWN. So long as that’s true, costs will be necessary to correct same.

  6. anjin-san says:

    We keep hearing how health care systems in Canada, England, etc. are “disasters” & “on the brink of collapse”. I have been hearing this since the early 80’s, and funny, they have not yet collapsed.

    I would like to hear some documntation of these “disasters” other then Rush’s talking points.

    My friends in France seem to be pretty happy with the health care they get.

  7. joe says:

    I am distrustful of modeling our health system on that of foreign countries.

    But we do spend over 18% were they are typically 12%. This is a 6 percent cost which is typically enough to be decisivive in competition.

    They do have longer life expectancies and a smaller number of infant deaths. Obviously there are dozens of other relevant measures, but these 2 are very important.

    They spend under 20% of total health care costs on “administration,” we spend over 30%. THe differences adds up to arounf 200 billion dollars, close to 2% of our economy.

    As for the tort system the reality is that while the majority of cases filed are frivilous and usually dismissed (though still expensive) the vast majority of people with legitimate claims don’t file.

    Reports are that one member of the VA system decided to document and report to patients all failures. While it payed to more people it payed less. We now have a syatem which continues to hide errors and shut patients out. This inclines juries to huge rewards, they remember the experiences of friends and family.

    There are dozens of areas where small, but significant reforms and tweaks can be made. Conservatives do not pursue these.

    Quite simply we have a noncompetitive system, privately owned does not mean you have markets. this can be demonstarted by the fact that the higher the percentage of a type of specialist in an area the greater the number of procedures performed and the higher the cost. The informal system of “networking” often means that when any patient with a good insurance policy comes to the hospital all sorts will be called in for consulting.

    Conservatives could argue for a more transparent, truly competitive system. Open publicaton of pricing and the patients ability to collect money if the cost is below what their insurance company posts… many ideas exist.

    However conservatives have aligned themselve with fedualism as opposed to capitalism, they believe in crony deals and protected niches.

    So of course those who argue for nationalization have an advantage. The cost of “administration” will fall (based on existing government programs) dramatically, crude but improved methods of tracking will occur etc.

    At least in the short run it will save huge sums of money. Republicans have had 5 years, they have at least one more. At the rate costs are growing this will develop into collapses and catostrophes yet the entire conservative argument is that Canada is a horror. So are many spots in our system, often far worse. Emergency rooms jammed etc.

    The thing is reform, but conservatives don’t seriously want it.

  8. Steve Verdon says:


    Right, but those taxes could be distributed a lot more efficiently and fairly than healthcare costs are now distributed.

    How do you know health care costs are distributed unfairly? Inefficient is probably a given with the current mish-mash/patch-work system we currently have, but I’m not convinced about unfair.

    As for the Wal-Mart CEO and the minimum wage color me completely unimpressed. This kind of “relationship” strikes me as dubious at best and most likely outright nonsense. How many people earn the minimum wage vs. higher wages? Further, the minimum wage can be considered something of a tax on employers and customers. Brad DeLong knows this because he has written about it. It basically amounts to taxing their customers to pay them more. While pulling oneself up by the bootstraps is a nice sounding bromide, it usually doesn’t work with taxes.

  9. Anderson says:

    Well, “fair” would keep us up all night, so I’ll settle for “efficient.”

    I’m familiar with your sort of minimum wage argument, but the fact remains that if people are earning only subsistence wages, there’s a lot of stuff being produced that they can’t buy. There’s obviously a balance to be struck between that consideration and the burden on consumers/employers. How to determine that point is an excellent question, and I happily admit that I’m not prepared to answer why the free market can’t/won’t/shouldn’t set it.

    Of course, Wal-Mart will sound more persuasive when it unilaterally raises wages … or do they want the min. wage increased to take the heat off themselves re: their shareholders? “We didn’t *want* to raise wages, the bad old feds made us do it.” But the CEO being on record in favor of such a hike doesn’t support that.

  10. bryan says:

    How do you know health care costs are distributed unfairly? Inefficient is probably a given with the current mish-mash/patch-work system we currently have, but I’m not convinced about unfair.

    Every person with an employee-provided insurance plan pays premium cost to subsidize all those who don’t have insurance who show up at the emergency room for basic care. How is that fair?

    Fair is a two-way street, after all.

  11. Steve Verdon says:


    It isn’t just my minimum wage argument, but the argument of just about every economist…at least the idea that we can treat the minimum wage as a tax. Brad DeLong and I disagree on the incidence part of it, but that’s about it. Hence the idea of taxing oneself to make oneself richer is…a bit of a stretch. Now if you argument was based on efficiency you might have something, but then again minimum wage arguments rarely hinge on efficiency arguments, but more on equity arguments.

    Personally, I’m more inclined to go with the EITC approach. That at least has a good incentive system.


    I think that is why Anderson is unwilling to argue the fairness part of health care. I personally don’t think the fairness issue is so clear cut myself. Maybe Anderson is right, but it will take quite a bit of research to figure it out…and even then such research probably wouldn’t persuade everybody.

  12. Anderson says:

    Steve: right, I didn’t mean to imply that you cooked that argument up in some Mad Plutocrat’s laboratory. It’s one perfectly valid side of the coin.

    As for “fairness,” it’s just that I have a philosophy B.A., and I try to avoid such discussions. It does seem that a national risk pool would spread the inequities out more.

    Slightly OT, my new proposal for slashing healthcare costs is, make Blue Cross quit paying for those feelgood billboards, TV spots, etc. that show what cute kids Blue Cross can pay to appear in ads. “How much of my premium is going for this crap?” I wonder.