The Effects of Rising Health Costs on Salaries and Income Inequality,

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Abstract:

Can the widely noted recent stagnant salary growth for the average U.S. worker and increased income inequality be explained, in significant part, by the rapidly rising costs of health care benefits? This article argues that they can. First, a simple economic model of the growth and distribution of total compensation, salaries and health benefits is posited. We then report recent statistics relevant to the model’s key concepts, supporting the logical structure and empirical specification of the model and its assertion of the centrality of the cost of health care benefits. Finally, we discuss the economic and political implications of this assertion for plan sponsors and public policymakers.