Employee Compensation: Employer Spending on Benefits Has Grown
Faster Than Wages, Due Largely to Rising Costs for Health
Insurance and Retirement Benefits (24-FEB-06, GAO-06-285).
Because most workers rely primarily on their employers to provide
both wages and benefits as part of a total compensation package,
the trends in the costs and availability of employer-sponsored
compensation have a significant bearing on workers' well-being.
Through tax preferences and payroll taxes, federal government
policy also has a bearing on employees' access to benefits and on
the costs carried by employers. The federal government provides
significant tax subsidies for both health insurance plans and
qualified retirement plans. In addition, workers and employers
are required to pay taxes that fund Social Security and Medicare,
programs intended to help provide for workers' economic security
and peace of mind in retirement. In this report, GAO examined
federal data on private employers' costs for active workers and
sought perspectives from 17 experts to identify (1) recent trends
in employers' total compensation costs; (2) composition of the
trends; (3) whether employees' costs, participation, or access to
benefits changed; and (4) possible implications of the changes
for private systems. GAO received technical comments from the
Departments of Labor and Health and Human Services and from some
of the experts GAO consulted. These comments were incorporated as
appropriate.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-285
ACCNO: A47797
TITLE: Employee Compensation: Employer Spending on Benefits Has
Grown Faster Than Wages, Due Largely to Rising Costs for Health
Insurance and Retirement Benefits
DATE: 02/24/2006
SUBJECT: Compensation
Cost analysis
Employee benefit plans
Employee medical benefits
Employees
Fringe benefit costs
Fringe benefits
Private sector
Statistical data
Subsidies
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GAO-06-285
* Results in Brief
* Background
* Average Compensation Costs Grew by 12 Percent between 1991 a
* While Growth in Compensation Costs Fluctuated between 1991 a
* Increases in the Costs of Benefits Outpaced Wage Growth amon
* The Increase in Employers' Cost of Benefits Was Largely Comp
* Employers' Costs for Health Insurance and Retirement Income
* For Most Employers, Retirement Income Showed the Greatest Pe
* Employees' Access to Benefits Remained Generally Stable, but
* The Share of Health Care Premiums Paid by Employees and Empl
* About Half of Employees Had Access to Retirement Income Plan
* Paid Leave Was Generally Available to All Workers, but Certa
* Experts Agreed That Rising Benefit Costs Are Forcing Private
* Concluding Observations
* Agency Comments
* Wages and Total Benefits
* Order by Mail or Phone
Report to Congressional Requesters
United States Government Accountability Office
GAO
February 2006
EMPLOYEE COMPENSATION
Employer Spending on Benefits Has Grown Faster Than Wages, Due Largely to
Rising Costs for Health Insurance and Retirement Benefits
GAO-06-285
Contents
Letter 1
Results in Brief 3
Background 5
Average Compensation Costs Grew by 12 Percent between 1991 and 2005, with
Benefits Outgrowing Wages by 8 Percentage Points 8
The Increase in Employers' Cost of Benefits Was Largely Composed of
Increases in the Cost of Health Insurance and Retirement Benefits 12
Employees' Access to Benefits Remained Generally Stable, but Employees
Face Greater Costs and Assume More Investment Risk 17
Experts Agreed That Rising Benefit Costs Are Forcing Private Employers and
Their Employees to Make Trade-Offs between Wages and Benefits 24
Concluding Observations 26
Agency Comments 27
Appendix I Scope and Methodology 28
Appendix II Employers' Real Hourly Costs for Employee Total Compensation,
Wages, and Total Benefits 35
Appendix III Employers' Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance 49
Appendix IV GAO Contacts and Acknowledgments 54
Tables
Table 1: Employers' Real Average Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers, 1991 to 2005 8
Table 2: Growth in Employers' Real Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits by Employer Type, 1991 to 2005 11
Table 3: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance, 1991 to 2005 13
Table 4: Percentage Changes in Employers' Hourly Costs of Employee Paid
Leave, Retirement Income, and Health Insurance for All Workers by Employer
Type, 1991 to 2005 16
Table 5: Participation in Employer-Provided Defined Benefit and Defined
Contribution Retirement Plans for All Workers and Full-time Workers, 1990
to 2003 22
Table 6: Percent of Workers Offered Employer-Provided Paid Leave, 1990 to
2003 23
Table 7: Private Industry Sectors and the Industries within those Sectors
30
Table 8: Employers' Real Hourly Costs for Employee Total Compensation,
Wages, and Total Benefits for All Workers, 1991 to 2005 35
Table 9: Employers' Real Hourly Costs of Employee Total Compensation for
All Workers by Establishment Size, 1991 to 2005 36
Table 10: Employers' Real Hourly Costs of Employee Total Compensation for
All Workers by Full- and Part-time Status, 1991 to 2005 37
Table 11: Employers' Real Hourly Costs of Employee Total Compensation for
All Workers by Union Status, 1991 to 2005 38
Table 12: Employers' Real Hourly Costs of Employee Total Compensation for
All Workers by Industry Sector, 1991 to 2003 39
Table 13: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance for All workers, 1991 to 2005 49
Table 14: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Establishment Size, 1991 to 2005 50
Table 15: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Full-time and Part-time Status, 1991 to
2005 51
Table 16: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Union and Nonunion Status, 1991 to 2005 52
Table 17: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Industry Sector, 1991 to 2003 53
Figures
Figure 1: Growth in Real Employer Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers, 1991 to 2005 10
Figure 2: Growth in Real Hourly Employer Costs of Employee Paid Leave,
Retirement Income, and Health Insurance for All Workers, 1991-2005 14
Figure 3: Eligibility and Participation in Employer-Provided Health
Insurance for All Employees by Employer Characteristics, 1996 to 2003 19
Figure 4: Average Annual Real Premium for Employer-Provided Health
Insurance of a Single Worker and Share Paid by Employees by Employer
Characteristics, 1996 to 2003 20
Figure 5: Growth in Real Employer Costs of Employee Wages and Total
Benefits for all Workers by Small Establishment Size, 1991 to 2005 40
Figure 6: Growth in Real Employer Costs of Employee Wages and Total
Benefits for all Workers by Medium Establishment Size, 1991 to 2005 41
Figure 7: Growth in Real Employer Costs of Employee Wages and Total
Benefits for all Workers by Large Establishment Size, 1991 to 2005 42
Figure 8: Growth in Real Employer Costs of Employee Wages and Total
Benefits for Full-time Workers, 1991 to 2005 43
Figure 9: Growth in Real Employer Costs of Employee Wages and Total
Benefits for Part-time Workers, 1991 to 2005 44
Figure 10: Growth in Real Employer Costs of Employee Wages and Total
Benefits for Union Workers, 1991 to 2005 45
Figure 11: Growth in Real Employer Costs of Employee Wages and Total
Benefits for Nonunion Workers, 1991 to 2005 46
Figure 12: Growth in Real Employer Costs of Employee Wages and Total
Benefits for Workers in the Service Providing Sector, 1991 to 2003 47
Figure 13: Growth in Real Employer Costs of Employee Wages and Total
Benefits for Workers in the Goods Producing Sector, 1991 to 2003 48
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Abbreviations
AHRQ Agency for Healthcare Research and Quality
BLS Bureau of Labor Statistics
CPI-U-RS Consumer Price Index Research Series
ECEC Employer Costs for Employee Compensation
ECI Employment Cost Index
MEPS Medical Expenditure Panel Survey
MEPS IC Medical Expenditure Panel Survey-Insurance Component
NAICS North American Industry Classification System
NCS National Compensation Survey
RSE relative standard error
SIC Standard Industrial Classification
United States Government Accountability Office
Washington, DC 20548
February 24, 2006
The Honorable Edward M. Kennedy Ranking Minority Member Committee on
Health, Education, Labor and Pensions United States Senate
The Honorable Patty Murray Ranking Minority Member Subcommittee on
Employment and Workplace Safety Committee on Health, Education, Labor and
Pensions United States Senate
Trends in the costs and availability of employer-sponsored
compensation-wages, health insurance, retirement income, and paid
leave-have a significant bearing on U.S. workers and U.S. industry.
Traditionally, employers used robust compensation packages to attract and
retain talented workers in order to maintain their competitiveness.
However, in today's changing global environment, some employers are citing
compensation costs as an obstacle to competing against foreign businesses
where the cost of doing business is lower. As a result, employers, in the
absence of sufficient growth in productivity, may alter compensation
packages or ask workers to accept a greater responsibility for such costs
in the future.
Through tax subsidies and payroll taxes, federal government policy also
has a bearing on employees' access to benefits and on the costs carried by
employers. The federal government provides significant tax subsidies for
both health insurance plans and qualified retirement plans. In offering
these subsidies, the federal government seeks to promote health care and
retirement income for individuals and families. In addition, workers and
employers are required to pay taxes that fund various programs. These
include Social Security and Medicare, programs intended to provide
financial security in retirement, as well as contributions to the
Unemployment Insurance program, which partially replaces income for
workers who are involuntarily unemployed. In this way the private system
of employer sponsored benefits works in tandem with social insurance
programs to promote the well-being of workers and retirees.
Given the significance of employer-sponsored compensation for the U.S.
workforce and the economy, we have examined federal data on employee
compensation for current workers in private industries to identify (1)
recent trends in employers' total compensation costs-including both wages
and benefits; (2) the composition of these trends; (3) whether employees'
costs, participation, or access to benefits have changed; and (4) the
possible implications of those changes for private systems.
Specifically, we examined data from two federal surveys: the Bureau of
Labor Statistics' (BLS) National Compensation Survey (NCS) and the Agency
for Healthcare Research and Quality's Medical Expenditure Panel Survey
(MEPS). We used NCS data to determine trends in private employer costs for
wages and salaries, total benefits (including those that employers are
legally required to contribute to, such as Social Security), and specific
employer-provided benefits-retirement income, health insurance, and paid
leave-for 1991 through 2005. All data are from the first quarter of each
year. Although employers spend funds on benefits and may change the
benefit package based on cost increases to control spending, BLS
characterizes its survey data as "costs" to employers. As such, we refer
to costs to employers in our analysis. The NCS data reflect employers'
costs for active employees and do not include costs for benefits employers
may provide to retirees. We also used NCS data to examine trends in
current employee participation in retirement plans and paid leave between
1990 and 2003.
We used MEPS data to determine for 1996 through 2003 the trends in current
employees' access to and participation in health insurance benefits, and
the premium cost to private employers and their employees. We examined
cost and participation data in the aggregate and whenever possible by
industry sector (goods-producing and service-providing), industry type
(such as manufacturing), establishment size, workers' full-time and
part-time status, and workers' union and nonunion status. The NCS measures
costs per employee hour worked, and MEPS measures costs as an annual
average. We report the data as they were measured. Because the data are
for multiple years, we report all costs in 2004 dollars to adjust for
inflation. In reviewing both NCS and MEPS data, we determined that they
were reliable for our purposes.
In addition to examining data, we convened a panel of 17 experts
representing the human resources field, industries, unions, and academia
to discuss the trends in the cost and availability of worker benefits. We
completed our work between May 2005 and December 2005 in accordance with
generally accepted government auditing standards. For additional
discussion of our scope and methodology, see appendix I.
Results in Brief
After controlling for inflation, the average cost of total compensation
(comprising wages and benefits) for employers grew by 12 percent between
1991 and 2005, but increases in benefit costs outpaced wages in the most
recent years. The real costs (inflation-adjusted) of total benefits, which
represented roughly a quarter of total compensation, grew by approximately
18 percent, while real wages grew by 10 percent. Wages and benefits
increased by about the same percentage from 1991 to 2002, after which time
wages began to stagnate and benefit costs continued to grow. In addition,
since 2002, increases in benefit costs outpaced wages among all types of
employers. For example, increases in benefits surpassed those for wages
for employers of both union and nonunion workers. However, regarding total
compensation increases in costs varied by types of employers.
Specifically, the increases in average total compensation costs were
greater for employers with medium and large establishments, full-time
workers, and union workers, as opposed to those with small establishments,
part-time workers, and nonunion workers.
The increase in the cost of a total benefits package from 1991 to 2005 was
largely composed of increases in the cost of providing health insurance
and retirement income. In combination with paid leave, these benefits
comprised almost 60 percent of benefit packages. Paid leave had
traditionally been the most costly benefit to employers, but by 2005, the
cost of health insurance equaled that of paid leave. This occurred, in
part, because health insurance costs, adjusted for inflation, grew by 28
percent since 1991 while the costs for paid leave grew by only 5 percent.
Of the three benefits, retirement income was the least costly, even though
it grew by an estimated 47 percent during the period, largely between 2003
and 2005. In part, this rapid growth occurred because the stock market,
bonds, and other investments were not delivering returns that allowed
employers to maintain funding levels for defined benefits plans-those that
guarantee a payout. Some benefit cost increases were greater for certain
types of employers and employees. For example, while large establishments
saw a 34 percent increase in health insurance costs between 1991 and 2005,
medium-sized establishments saw an increase of 45 percent.
During the time under review, employees' access to benefits remained
stable, but participation rates declined for health benefits, some costs
have been shifted to employees, and they have assumed greater investment
risk. Between 1996 and 2003, the percentage of employees at establishments
that offered health insurance did not change and employers continued to
pay approximately the same share of the premium for employee health
insurance, but a smaller percentage of employees participated as the real
dollar amount of the premiums increased. Some employees also saw increases
in their deductibles and co-payments during this time, according to the
expert panelists we convened. With regard to retirement, half of all
workers participated in employer-provided retirement plans between 1991
and 2003, but the types of plans shifted more toward defined contribution
plans, under which employees assume the investment risk. With regard to
paid leave, holidays and vacations were generally available to most
workers between 1991 and 2003, but a smaller percentage of workers had
access to personal leave and sick leave.
A panel of experts from a variety of backgrounds (including human
resources, industry, unions and academia) reviewed the trends we found in
employee compensation and noted that rising benefit costs-increases in the
cost of health insurance and retirement income-are forcing private
employers and their employees to make trade-offs between wages and
benefits. Maintaining health care and pensions is the main priority for
workers, according to union representatives, who said that workers are
foregoing wage increases in order to maintain benefits. Panelists
discussed changes occurring in the types of employer-sponsored retirement
and health care benefits offered and noted that trends in worker benefits
are shifting toward increasing responsibility and risk to the employee. It
was noted that these shifts will require increased education in order for
employees to make informed decisions. Panelists discussed implications for
increasing benefit costs for both employers and employees, noting that
employers may try to remain competitive in a global environment by
limiting increases in compensation, by locating some or all of their
production activity overseas, and by using more contingent workers. It was
also noted that businesses have concerns about their ability to take on
long-term liabilities associated with certain benefit packages. The expert
panelists noted that productivity growth is unlikely to support recent
rising costs of benefits, and in the absence of any major changes, rising
benefit costs are challenging employers' ability to offer health insurance
and retirement income.
We requested comments on a draft of this report from the departments of
Labor and Health and Human Services. We received technical comments from
the Bureau of Labor Statistics and the Employee Benefits Security
Administration at the Department of Labor and from the Agency for
Healthcare Research and Quality at the Department of Health and Human
Services. We also provided experts with the section of the draft that
characterized the exchange at the expert panel. We incorporated comments
where appropriate.
Background
Currently, U.S. workers rely primarily on their employers to provide both
wages and benefits (such as paid leave, retirement, and health insurance)
as part of a total compensation package, with wages comprising
approximately 70 percent of total compensation. Of the benefits package
employers provide to employees, almost one-third is mandated by law, and
includes contributions to programs such as Social Security, Medicare,
workers' compensation, and unemployment insurance, and other programs. The
remaining portion of the benefits package is discretionary and typically
includes paid leave, retirement income, and health insurance-some of the
more costly benefits.
Over the last century, employer-sponsored benefits have become an
increasingly important part of compensating workers. Prior to the turn of
the 20th century, workers relied primarily on their own, their families',
or the communities' resources in the event of a health or economic
emergency. With the advent of the industrial revolution in the United
States, unions began to offer disability and death coverage to workers in
order to protect them against workplace risks of factory work. The tight
labor market of World War II, along with Supreme Court rulings and federal
legislation, helped make benefits a legitimate part of collective
bargaining and, in part, fueled the offering of employer-sponsored
benefits.
Outside the benefits that are legally required, those benefits that
employers choose to provide serve a number of purposes. From a business
perspective voluntary benefits assist employers to attract and retain
highly skilled workers. For example, pension plans can be a means of
attracting workers, reducing turnover, and encouraging productivity.
Defined benefit pension plans, which are typically offered as periodic
payments over a specified period beginning at retirement age, can be used
to foster a worker's long-term commitment to his or her employer. Defined
contribution pension plans, which are individual accounts to which
employers and/or employees make contributions, may be attractive to
employees who desire more portable benefits. In deciding to offer
benefits, companies must assess the nature of their particular workforce
to determine if offering benefits is a necessary employment inducement.
Employers may also choose to sponsor benefit plans because of favorable
federal tax treatment for certain forms of compensation.1 To encourage
them to establish and maintain pension plans, the federal government
provides preferential tax treatment under the Internal Revenue Code for
plans that meet certain requirements. A purpose of tax preferences for
employer-sponsored pensions is to encourage savings for workers'
retirement.2 Pension tax preferences are structured to strike a balance
between providing incentives for employers to start and maintain
voluntary, tax-qualified pension plans and ensuring participants receive
an equitable share of the tax-favored benefits. In fiscal year 2004, the
federal government was expected to forgo an estimated $95 billion in
federal income tax revenue due to the tax exclusion for employer-sponsored
pension plans.3 Tax policies also contain significant tax benefits for
employer-sponsored health insurance and medical care. Most notable, the
tax exclusion for health care permits the value of employer-paid health
insurance premiums to be excluded from employees' taxable earnings for
income taxes. It also excludes the value of the premiums from the
calculation of Social Security and Medicare payroll taxes for both
employers and employees. The tax exclusion is credited with increasing
health coverage for employees. The risk pooling under group health
insurance allows employees to obtain insurance at lower costs than the
individual insurance market.4 The federal government was expected to forgo
an estimated $153 billion in taxes in fiscal year 2004 due to the
exclusion of employer contributions for health care.5
1Employees in higher tax brackets have greater incentive to seek
compensation through tax preferred benefits. See GAO, Government
Performance and Accountability: Tax Expenditures Represent a Substantial
Federal Commitment and Need to Be Reexamined, GAO-05-690 (Washington,
D.C.: Sept. 23, 2005).
2While workers' cash earnings are taxed immediately, pension plan
participants typically do not include their employer's or their own
contributions (and the investment earnings on these contributions) to a
qualified plan in determining their income tax liability until they
receive benefits. The employer is also entitled to a current deduction
(within certain limits) for contributions to a tax-qualified plan even
though contributions are not currently included in an employee's income.
See GAO, Answers to Key Questions about Private Pension Plans,
GAO-02-745SP (Washington, D.C.: Sept. 18, 2002).
3This reflects the U.S. Department of the Treasury's estimates for defined
benefit and defined contribution plans sponsored by all employers
(including federal, state, and local governments). These estimates measure
the income tax revenue loss from exempting employer contributions and
pension investment earnings offset by taxes paid on current pension
benefits. Employer pension contributions are also exempt from Social
Security and Medicare payroll taxes.
4Some researchers believe that the unlimited availability of the exclusion
for employer-provided health insurance has led to excessive use of health
care services, which has helped to drive up health care prices faster than
the overall price level.
Recent developments are leading employers to make decisions about the
provision of the employer-based benefits system. An aging population with
longer life expectancies increases the long-term obligations of companies
that provide defined benefit pension plans. Some companies have cited this
obligation as a contributing reason for declaring bankruptcy,
reorganizing, and terminating large plans of this type. Advances in
expensive medical technology, increased use of high-cost services and
procedures, and an aging population have contributed to escalating health
care costs. Advances in other technologies have stepped up competition
from foreign firms by increasing global competition. In response to such
competition, U.S. firms have continued to look for ways to reduce their
costs, such as offshoring and using contingent workers (many of whom are
not offered benefits).
In addition to employer-sponsored benefits, multiple federal programs
supplement workers' and retirees' benefits. For example, Social Security
pays monthly cash benefits to more than 36 million eligible retired or
disabled workers.6 Intended to complement retirement incomes, in many
cases Social Security may provide the only source of such retirement
income. In addition, the federal-state Medicaid program provides health
insurance to certain low-income individuals including older Americans in
need of long-term care who meet financial eligibility and other
requirements. Most recent figures show Medicare provides health insurance
to 35 million individuals age 65 years and more than six million disabled
individuals under age 65.7
5This assumes payroll tax revenue losses amount to half of the $102
billion in income tax revenue losses estimated by the U.S. Department of
the Treasury.
6Recipients as of June 2005. Social Security also provides benefits to
dependent survivors.
7See also GAO, 21st Century Challenges: Reexamining the Base of the
Federal Government, GAO-05-325SP (Washington, D.C.: February 15, 2005) and
Older Workers: Demographic Trends Pose Challenges for Employers and
Workers, GAO-02-85 (Washington, D.C.: Nov. 16, 2001).
Average Compensation Costs Grew by 12 Percent between 1991 and 2005, with
Benefits Outgrowing Wages by 8 Percentage Points
Private employers' average cost of total compensation (comprised of wages
and benefits) for current workers grew by 12 percent between 1991 and
2005, but benefit costs outpaced wages in the most recent years after
controlling for inflation. The increases in average total compensation
costs were greater for employers with medium and large establishments,
full-time workers, and union workers, than for those with small
establishments, part-time workers, and nonunion workers. The overall real
costs of benefits grew by 18 percent, while real wages grew by 10 percent.
Benefits represented more than a quarter of total compensation costs.
While Growth in Compensation Costs Fluctuated between 1991 and 2005, Average
Benefit Cost Increases Had Outgrown Average Wage Increases by the End of the
Period
On average, overall employers' inflation-adjusted cost for total
compensation rose about 12 percent between 1991 and 2005. Both components
of total compensation-wages and benefits-had also grown after adjusting
for inflation, but at different rates. By the end of the period, the cost
of total benefits grew by approximately 18 percent and wages had increased
by 10 percent (see table 1). By 2005, benefits accounted for 29 percent of
total compensation while wages made up 71 percent of the workers'
compensation package.
Table 1: Employers' Real Average Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers, 1991 to 2005
1991 2005 Percentage change
Total compensation $20.83 $23.39 12
Wages and salaries $15.07 $16.60 10
Total benefitsa $5.77 $6.79 18
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour
worked. To control for the effect of inflation, dollars are reported in
2004 terms by using the BLS Consumer Price Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Wages and total benefits may not add up to equal total compensation due to
rounding.
aThe calculation of benefits includes total benefits tracked by BLS. These
benefits include those to which employers are legally required to make
contributions (Social Security, Medicare, federal and state unemployment,
and workers compensation), and voluntary benefits (paid leave,
supplemental pay, insurance plans-life and health, retirement and savings,
and other benefits).
Across the 15 years under examination, the cost of wages and benefits
generally grew in tandem, albeit at different rates (see fig. 1). The
noteworthy exception was after 2002 when benefit costs continued in a
steep ascent and wages began to flatten, resulting in an almost 8
percentage point difference between the growth rates of the two. The
recent divergence between benefits and wages is not unprecedented; there
was a 6 percentage point difference between wage increases and benefit
cost increases in 1994. However, what makes the divergence between the
growth of wages and benefits after 2002 compelling is that it is preceded
by a steady increase for both. The result, therefore, has been a
significantly larger real dollar cost to employers-roughly $1,000 more per
year in benefit costs for each full-time employee-when comparing 1994 to
2005.
Figure 1: Growth in Real Employer Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers, 1991 to 2005
Notes: Growth in each category between 1991 and 2005 is statistically
significant at the 95 percent confidence level.
Data represent costs to private employers only.
The calculation of benefits includes total benefits tracked by BLS. These
benefits include those to which employers are legally required to make
contributions (Social Security, Medicare, federal and state unemployment,
and workers compensation), and voluntary benefits (paid leave,
supplemental pay, insurance plans-life and health, retirement and savings,
and other benefits).
Increases in the Costs of Benefits Outpaced Wage Growth among All Types of
Employers, Although Average Cost Increases Varied
As was the case in the aggregate, by 2005, growth in the real cost of
benefits outpaced the increase in wages for each type of employer (see
table 2). For employers of union workers this effect was even more
pronounced; these employers experienced benefit cost increases greater
than wage increases over most of the time period and saw several years of
no growth in wages. This pattern of benefit growth outpacing wage growth
rates was least pronounced for employers of part-time workers, but still
true.8 (See app. II, fig. 5 to 13 for all employers.)
Table 2: Growth in Employers' Real Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits by Employer Type, 1991 to 2005
In percent
Total
Total benefit
compensation Wages cost Benefits as a
growth, growth, growth, proportion of total
1991-2005 1991-2005 1991-2005 compensation, 2005
Aggregate 12 10 18 29
compensation
Type of employer
Small
establishments
(1-99 workers) 8 7 12 26
Medium
establishments
(100-499 workers) 22 19 31 30
Large
establishments
(500+ workers) 21 17 31 33
Full-time workers 16 14 24 30
Part-time workers 13 12 15 21
Unionized workers 21 14 32 37
Nonunionized 13 11 20 28
workers
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
8BLS began using new codes to classify industries with the 2004 data.
Therefore, data comparable to 1991 to 2003 were not available by industry.
Although we could not look at the data across the complete time period,
for industry sectors, the trends appear to follow a similar pattern. For
example, for employers in the service-providing sector, growth in wages
flattened in 2002 while an increase in the cost of benefits continued (see
app. II, fig. 12 and 13). Under the old industry codes, the
goods-producing sector included the following industries: mining,
construction, and manufacturing. The service-providing sector included the
following industries: transportation and utilities; wholesale trade;
retail trade; finance, insurance, and real estate; and services. Within
the industry sectors the following industries showed statistically
significant increases in wages: manufacturing (7 percent), retail trade (7
percent), and services (17 percent). The following industries showed
statistically significant increases in total benefits: manufacturing (12
percent); wholesale trade (15 percent); finance, insurance, and real
estate (34 percent); and services (18 percent).
Notes: Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Data represent costs to private employers only.
The growth rates for certain groups of employers may be higher than the
aggregated average growth rate due to changes in employment composition
and compensation cost levels overtime.
While employers uniformly saw average real benefit costs grow more than
average real wages, the overall increase in total compensation varied by
employer type. Employers at medium (100 to 499 workers) and large
establishments (500 or more workers) experienced increases in total
compensation costs of roughly 20 percent. In contrast, small
establishments did not experience statistically significant increases in
total compensation costs. Employers' total compensation costs for
full-time workers increased by 16 percent as compared with the 13 percent
increase for part-time workers. Employers of unionized workers saw their
total compensation costs grow by 21 percent as compared to the 13 percent
increase experienced by employers of nonunion workers.9 (See app. II,
tables 8 to 12 for all employers.)
The Increase in Employers' Cost of Benefits Was Largely Composed of Increases in
the Cost of Health Insurance and Retirement Benefits
The increase in the cost of a total benefits package from 1991 to 2005 was
largely composed of increases in the cost of providing health insurance
and retirement income. Paid leave had traditionally been the most costly
benefit to employers, but by 2005, the cost of health insurance equaled
that of paid leave. Of the three benefits, retirement income was the least
costly, even though it grew by an estimated 47 percent in real terms
during the period, largely between 2004 and 2005.
9Although 2004-2005 data for industry sectors are not comparable with
earlier years, we did find that from 1991 to 2003 employers in the
service-providing sector saw total compensation costs increase by 13
percent. This compares with an 8 percent increase in the goods producing
sector. Only the manufacturing (8 percent); finance, insurance, and real
estate (20 percent); and services (17 percent) industries showed
statistically significant changes in total compensation.
Employers' Costs for Health Insurance and Retirement Income Increased over 27
Percent between 1991 and 2005
The increase in the real cost of a total benefits package from 1991 to
2005 was largely composed of increases in the real cost of providing
health insurance and retirement income. (See table 3 and fig. 2.) Paid
leave had traditionally been the most costly benefit to employers, but by
2005, the cost of health insurance equaled that of paid leave.10 This
occurred, in part, because health insurance costs grew by 28 percent while
the costs for paid leave did not show significant growth during the period
under study. Of the three benefits, retirement income was the least
costly, even though it grew by an estimated 47 percent during the period,
largely between 2004 and 2005. In combination with paid leave, these three
benefits represented on average almost 60 percent of an employee's total
benefit package and over 80 percent of employers' costs for voluntary
benefits.11
Table 3: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance, 1991 to 2005
1991 2005 Percentage change
Paid leave $1.42 $1.49 5
Retirement income $0.59 $0.87 47
Health insurance $1.24 $1.59 28
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour
worked. To control for the effect of inflation, dollars are reported in
2004 terms by using the BLS Consumer Price Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
10There was no statistically significant difference between the costs of
paid leave and health insurance at the 95 percent confidence level. Paid
leave costs are tied to wages and salaries since employees are generally
paid at the same wage rate when using paid leave.
11Other voluntary benefits included in the National Compensation Survey
include supplemental pay, life insurance, short-term and long-term
disability, and other benefits, such as severance pay.
Figure 2: Growth in Real Hourly Employer Costs of Employee Paid Leave,
Retirement Income, and Health Insurance for All Workers, 1991-2005
Notes: Growth in retirement income and health insurance between 1991 and
2005 are statistically significant at the 95 percent confidence level
while the growth in paid leave is not.
Data represent costs to private employers only.
Expert panelists discussed underlying factors driving trends in real costs
for employer-sponsored benefits from 1991 to 2003. Regarding trends in
retirement income, an expert noted that employers decreased their
contributions to funds for defined benefit plans during the 1990s, which
was reflected in a decrease in employer spending for retirement income.
According to the Bureau of Labor Statistics,12 defined-benefit pension
plan assets grew rapidly in the middle to late 1990s as the stock market
continued to rise, so employers often did not need to contribute funds to
defined-benefit pension plans. Stock prices generally fell from April 2000
to February 2003,13 and interest rates on bonds and other investments
remained low, requiring employers to contribute more funding to
defined-benefit plans beginning in 2003 to meet minimum funding
requirements.14 Recent increases in employer costs for retirement benefits
can be attributed to a similar phenomenon. Legislation enacted in 2004-the
Pension Funding Equity Act-provided 2-year relief for businesses, allowing
contributions to be reduced compared to what would have otherwise been
required.
12See Joseph R. Meisenheimer II, "Real Compensation, 1979 to 2003:
analysis from several data sources," Monthly Labor Review, Volume 128,
Number 5 (Washington, D.C.: Bureau of Labor Statistics, Department of
Labor; May 2005).
In the case of health care benefits, in addition to increases in the cost
of providing medical services, several factors were noted to drive trends
in employer costs. These include the health insurance underwriting cycle,
the emergence of managed care, competition, and consolidation in the
health care industry. In the underwriting cycle, health insurance
companies forecast premium costs and then set their prices either higher
to maximize profitability or lower to maximize market share. In the early
1990s, managed care plans lowered their premium prices in order to
increase market share, fueling price competition among health insurance
companies. However, later in the decade, many plans moved away from
tightly managed health care plans. As one expert noted, in the late 1990s,
insurer consolidation and mergers led to a more concentrated industry.
Research in this area suggests that many of the remaining plans shifted
their strategies from gaining market share to improving profitability,
stimulating premium increases and spurring the upward trend in costs for
employers.15
For Most Employers, Retirement Income Showed the Greatest Percentage Increase
Most types of employers experienced the largest percentage increases in
costs for retirement income compared to the growth in costs for health
insurance and paid leave between 1991 and 2005 (see table 4). This was
true for employers whether they had union or nonunion employees, or
whether they employed part-time or full-time workers. Small establishments
were the one exception; health insurance represented their greatest cost
increase. Nevertheless, the real dollar costs for health insurance and
paid leave remained larger than retirement income costs for all
employers.16 Appendix III, tables 13 to 17 provide real costs for paid
leave, retirement income, and health insurance for each employer
characteristics between 1991 and 2005.17
13In commenting on this report, BLS reported that an additional reason for
the change in retirement costs may be the way in which benefit cost levels
are collected and calculated.
14Defined benefit plans are required to make an actuarial evaluation
annually to determine their minimum funding requirements.
15See Joy M. Grossman and Paul B. Ginsburg, "As The Health Insurance
Underwriting Cycle Turns: What Next?" Health Affairs, Volume 23, Number 6,
(November/December 2004).
Table 4: Percentage Changes in Employers' Hourly Costs of Employee Paid
Leave, Retirement Income, and Health Insurance for All Workers by Employer
Type, 1991 to 2005
Paid leave Retirement income Health insurance
Aggregate 5 47 28
Type of employer
Small establishment (1-99
workers) 1 12 25
Medium establishment
(100-499 workers) 20 61 45
Large establishment (500+
workers) 16 99 34
Full-time workers 12 55 34
Part-time workers -1 48 32
Union workers 13 97 50
Non-Union workers 7 45 30
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Data represent costs to private employers only.
16The one exception to this trend was for employers of union workers in
2005. For that year, the cost of retirement income was higher than paid
leave. However, the cost of health insurance remained higher than both
paid leave and retirement income.
17While comparable data covering the 2004-2005 period are not available
for industry sectors, from 1991 to 2003 available data show the largest
percentage increase in benefits costs for the goods-producing sectors was
in health insurance. The growth in retirement income was largest for
employers in the service-providing sector during this period.
Employees' Access to Benefits Remained Generally Stable, but Employees Face
Greater Costs and Assume More Investment Risk
During the time under review, employees' access to benefits has remained
stable, but participation rates declined for health benefits, some costs
have shifted to employees, and they have assumed more investment risk.
Between 1996 and 2003, the percentage of employees at establishments that
offered health insurance did not change. Also, employers continued to pay
approximately the same share of the premium for employee health insurance,
but a smaller percentage of employees participated as the real dollar
amount of the premiums increased. Some employees also saw increases in
their deductibles and co-payments during this time, according to the
expert panelists we convened. With regard to retirement income, half of
all workers participated in employer-provided retirement plans between
1991 and 2003, but the types of plans shifted more toward defined
contribution plans, under which employees assume the investment risk. With
regard to paid leave, holidays and vacations were generally available to
all workers between 1990 and 2003, but a smaller percentage of workers had
access to personal leave and sick leave.
The Share of Health Care Premiums Paid by Employees and Employers Remained
Relatively Stable, but Employee Participation Declined
Between 1996 and 2003, the percentage of employees who worked at
establishments offering health insurance to their employees remained at
about 87 percent. However, the percentage of those employees eligible for
the benefit decreased to 79 percent in 2003 (see fig. 3). Moreover, of
those who were eligible, the percentage who participated in their
companies' plans decreased from 86 to 80 percent. During this period, real
premiums for health insurance for single workers increased by 34
percent-from an annual average of $2,706 to $3,633. Employees' share of
these premiums showed no statistically significant increase over 1819the
time period under review and ranged between 16 and 18 percent. However,
their real dollar contribution increased from an annual average of $465 to
$633, after adjusting for inflation. Some experts have noted that some
employees' deductibles and co-payments also increased during this period.
18Data presented on premiums, the percentage of workers at establishments
offering health insurance, the percentage of workers eligible for health
insurance at firms offering the benefit, and the percentage of eligible
workers who enroll in the benefit are from the Medical Expenditure Panel
Survey-Insurance Component (MEPS IC) and represent the years 1996 to 2003.
The data used for this analysis did not allow us to assess the adequacy of
coverage, or any change in quality. (See app. I for more details.)
19Premium costs presented here are for single workers coverage. Family
coverage premiums increased by 43 percent between 1996 and 2003-from an
annual average of $6,732 to $9,654. The real premium included both the
employee's and employer's share. To control for the effect of inflation in
health insurance premiums, dollars are reported in 2004 terms by using the
BLS Consumer Price Index for Medical Care. Inflation in medical care has
been great, and using an all items CPI would overstate the growth in
premium costs.
The percentage of establishments offering insurance, the percentage of
employees eligible, and the percentage of eligible employees enrolled
ranged across all types of employers. This suggests that some employees
were more likely to receive employer-sponsored health insurance than
others (see fig. 3). For example, the percentage of employees who worked
at small firms (1 to 9 employees) offering health insurance was 46 percent
compared with 99 percent for those in firms of 1,000 or more employees.
The same was true for the percentage of employees eligible to participate
in the health insurance plans offered by companies. For example, of those
employed part-time, 32 percent were eligible while 89 percent of those who
worked full-time were eligible. This was also the case for participation
among those eligible. For most types of employers, over 75 percent of
eligible employees enrolled in the company's health plan. This trend was
true across firm sizes, for most industries, and union status. The
exception to this trend was in retail where the enrollment rate was 67
percent and for part-time workers at 48 percent.
Figure 3: Eligibility and Participation in Employer-Provided Health
Insurance for All Employees by Employer Characteristics, 1996 to 2003
Note: Bold signifies that percentage changes between 1996 and 2003 are
statistically significant at the 95 percent confidence level.
The health insurance premium increases seen overall were true for every
type of employer regardless of characteristics, such as firm size or
industry. For each type, the average annual single worker premiums
increased between 1996 and 2003 by at least 24 percent (see fig. 4). By
2003, the average premium ranged between $3,445 and $4,278, after
adjusting for inflation. The mining industry experienced the largest
increase over the time period, while premiums for employers and workers in
the transportation and utilities industry increased the least. Employees'
shares of these premiums ranged between 12 percent and 21 percent. At the
high end of the range were employees in the retail industry, which also
had one of the largest declines in enrollment across the period examined.
Figure 4: Average Annual Real Premium for Employer-Provided Health
Insurance of a Single Worker and Share Paid by Employees by Employer
Characteristics, 1996 to 2003
Notes: Bold signifies that percentage changes between 1996 and 2003 are
statistically significant at the 95 percent confidence level.
Premiums are measured as the annual average cost for employers and
employees for single workers. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price Index
for Medical Care. Data on premium amounts are not available by full- or
part-time status.
About Half of Employees Had Access to Retirement Income Plans, with a Trend
Toward Defined Contribution Plans
Employee participation in retirement plans did not change significantly
between 1990 and 2003.20 Roughly half of all workers participated in an
employer-sponsored retirement plan, and closer to 60 percent of those who
were full-time employees did so. However, there was a noticeable shift
that occurred from defined benefit retirement plans to defined
contribution plans (see table 5).21 Employers who sponsor defined benefit
retirement plans agree to make future payments during the employee's
retirement. To meet this obligation employers are responsible for making
contributions sufficient to fund promised benefits, investing and managing
plan assets, and bearing the investment risk. Under defined contribution
retirement plans, employers may make contributions but have no obligations
regarding the future sufficiency of those funds. Thus, this shift from
defined benefit to defined contribution plans shifts the responsibility
for providing for one's retirement income to the employee. In addition,
while participation in most defined benefit plans is automatic (depending
on one's position), many defined contribution plans require employee
contributions before the employer makes a contribution.22
20Data on the availability of retirement and paid leave benefits to
employees are from the BLS' National Compensation Survey. Available data
did not allow us to assess the adequacy of the retirement income available
to plan participants.
21For this analysis, we relied on previous analysis issued by BLS that did
not include trends across time by industry, for union or nonunion workers,
or part-time workers. See William J. Wiatrowski, "Documenting Benefits
Coverage for all Workers," originally posted May 26, 2004, revision posted
December 21, 2005; U.S. Department of Labor, Bureau of Labor Statistics,
http://www.bls.gov/opub/cwc/print/cm20040518ar01p1.htm (last accessed Jan.
24, 2006).
22See GAO, Private Pensions: Issues of Coverage and Increasing
Contribution Limits for Defined Contribution Plans, GAO-01-846
(Washington, D.C.: Sept. 17, 2001).
Table 5: Participation in Employer-Provided Defined Benefit and Defined
Contribution Retirement Plans for All Workers and Full-time Workers, 1990
to 2003
Workers participating in a
retirement plan regardless Defined
of type of plan Defined benefit contribution
All Full-time All Full-time All Full-time
Year workers workers workers workers workers workers
1990-1991 53% 60% 35% 39% 34% 39%
1991-1992 54% 61% 34% 39% 35% 40%
1992-1993 53% a 32% a 35% a
1993-1994 50% 58% 28% 33% 34% 40%
1994-1995 51% 60% 28% 33% 37% 44%
1995-1996 a 61% a 32% a 46%
1996-1997 53% 62% 27% 32% 40% 47%
1998 a a a a a a
1999 48% 56% 21% 25% 36% 42%
2000 48% 55% 19% 22% 36% 42%
2001 a a a a a a
2002 a a a a a a
2003 49% 58% 20% 24% 40% 48%
Source: GAO presentation of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
aData were not collected or not tabulated in a given year. The entire
private sector economy was not surveyed at the same time until 1999, which
results in data that span multiple and overlapping periods prior to then.
Note: Percentages do not add up to 100 because workers might be enrolled
in both defined benefit and defined contribution plans.
Paid Leave Was Generally Available to All Workers, but Certain Types of Leave
Were Less Available to Part-Time Workers
The percentage of employees offered paid leave was relatively stable
between 1990 and 2003. Across the period, three-quarters or more of all
workers were eligible for paid holidays and vacations. Full-time workers
were more likely than part-time workers to be offered employer-sponsored
paid leave (see table 6).23
23For this analysis, we relied on previous analysis issued by BLS that did
not include trends across time by industry, for union or nonunion workers,
or part-time workers. See William J. Wiatrowski, "Documenting Benefits
Coverage for all Workers," originally posted May 26, 2004, revision posted
December 21, 2005; U.S. Department of Labor, Bureau of Labor Statistics,
http://www.bls.gov/opub/cwc/print/cm20040518ar01p1.htm (last accessed Jan.
24, 2006).
Table 6: Percent of Workers Offered Employer-Provided Paid Leave, 1990 to
2003
Jury
Personal Funeral duty Military Sick
Year Holidays Vacations leave leave leave leave leave
1990-1991 All 79% 83% 14% 56% 62% 32% 50%
workers
Full-time 88% 92% 16% 63% 70% 37% 57%
workers
1991-1992 All 77% 82% 14% 57% 63% 31% 52%
workers
Full-time 87% 92% 16% 65% 71% 37% 60%
workers
1992-1993 All 77% 82% 15% 57% 64% 30% 50%
workers
Full-time a a a a a a a
workers
1993-1994 All 75% 80% 14% 56% 63% 27% 47%
workers
Full-time 86% 92% 16% 65% 72% 33% 57%
workers
1994-1995 All 74% 80% 15% 55% 62% 25% 44%
workers
Full-time 85% 92% 17% 65% 71% 30% 52%
workers
1995-1996 All a a a a a a a
workers
Full-time 84% 91% 18% 64% 71% 30% 54%
workers
1996-1997 All 73% 79% 15% 56% 63% 27% 44%
workers
Full-time 85% 91% 17% 66% 73% 32% 53%
workers
1998 All a a a a a a a
workers
Full-time a a a a a a a
workers
1999 All 75% 79% a a a a 53%
workers
Full-time 87% 90% a a a a 63%
workers
2000 All 77% 80% a a a a a
workers
Full-time 87% 91% a a a a a
workers
2001 All a a a a a a a
workers
Full-time a a a a a a a
workers
2002 All a a a a a a a
workers
Full-time a a a a a a a
workers
2003 All 79% 79% a a 70% 50% a
workers
Full-time 91% 91% a a 77% 56% a
workers
Source: GAO presentation of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
aData were not collected or not tabulated in a given year. The entire
private sector economy was not surveyed at the same time until 1999, which
results in data that span multiple and overlapping periods prior to then.
Experts Agreed That Rising Benefit Costs Are Forcing Private Employers and Their
Employees to Make Trade-Offs between Wages and Benefits
Experts who reviewed our data found it reflected their experience and
asserted that rising benefit costs have been leading employers and
employees to make increasingly difficult trade-offs between wages and
benefits. Maintaining health care and pensions is the main priority for
workers, according to union representatives who said that workers are
trading wage increases in order to maintain benefits. A panelist noted
that workers consistently choose to preserve health care benefits over
increases in cash compensation. On the other hand, it was noted by a small
business leader that in his experience some employees, particularly
younger people, prefer to increase wages rather than preserve benefits. A
panelist explained that it is the rise in the actual dollar costs of
benefits that is driving both employer's and employee's decisions.
Additionally, our compensation data for the past decade provoked a number
of observations from the panelists regarding the likelihood of shifting
risk to the individual employee. Experts discussed the continuing shift in
employer-sponsored retirement income from defined benefit to defined
contribution plans. One expert predicted the eventual termination of
defined benefit plans, a freeze or decrease in hybrid plans (those that
combine features of defined benefit and defined contribution plans), and a
shift towards 401(k) savings plans (which are a type of defined
contribution plan).24 Panelists also observed that with regard to health
benefits, employers are experimenting with consumer-directed health care
plans, which may also shift more responsibility and risk to the individual
employee.25 In addition, employers are considering changing the way they
offer compensation. Experts agreed that there has been a movement from
fixed to incentive compensation, wherein employers tie cash compensation
to productivity. It was noted that some employers are turning to stock
options in lieu of wage increases. Given the risks implied for the
individual in such private sector plans, for both retirement and health
care, a panelist emphasized that employees will need adequate education to
make informed decisions.26
24GAO has found similar trends. See GAO, Private Pensions: Issues of
Coverage and Increasing Contribution Limits for Defined Contribution
Plans, GAO-01-846 (Washington, D.C.: Sept. 17, 2001); GAO, Private
Pensions: Improving Worker Coverage and Benefits, GAO-02-225 (Washington,
D.C.: Apr. 9, 2002); and GAO, Pension Benefit Guaranty Corporation:
Single-Employer Pension Insurance Program Faces Significant Long-Term
Risks, GAO-04-90 (Washington, D.C.: Oct. 29, 2003).
25Consumer-directed health plans are a relatively new health care plan
design. While many variants exist, such plans generally include three
basic precepts: an insurance plan with a high deductible, a savings
account to pay for services under the deductible, and decision support
tools. See GAO, Federal Employees Health Benefits Program: Early
Experience with a Consumer-Directed Health Plan, GAO-06-143 (Washington,
D.C: Nov. 21, 2005).
Panelists also made observations about the rise in compensation costs and
their current and future implications for business and for employees. One
benefits expert stated that if an employer is locked into paying
compensation costs that the productivity of their workers cannot support,
jobs will go elsewhere. A union representative noted that the garment
industry has faced international competitors with lower compensation
costs, which has led to lowered compensation for U.S. workers and a loss
of domestic jobs. It was noted that employers may attempt to remain
competitive by cutting wages and benefits for workers, offshoring jobs,
and increasing the use of contingent workers, who may not be provided
benefits. It was also noted that businesses have concerns about their
ability to sustain long-term liabilities associated with certain benefit
packages.
Experts disagreed on whether or how much of the responsibility for
addressing the rise in benefit costs should rest with the public sector.
In the view of a union spokesperson, such benefits amount to a social
good, something that supports the well-being and overall productivity of
society. A union representative noted that employees who have dropped out
of health insurance plans, especially employees in lower wage industries,
have subsequently relied on public programs in which taxpayers ultimately
bear the cost. Other panelists expressed belief in the marketplace as an
arbiter of resources and said that government or public benefit models are
not a solution to employers' rising costs for compensation. These
panelists suggested competition would eventually resolve the distribution
of benefits by winnowing out companies that could not attract the kind of
employees needed with the type of compensation they provide. One panelist
emphasized that government, therefore, should have limited involvement in
the provision of employer-sponsored benefits. A human resources
representative suggested that businesses should be allowed to experiment
with different means of providing benefits. On the other hand, it was also
suggested that future solutions to benefit costs would require both public
and private initiative and collaboration. A union representative noted
that partnerships among employers, workers, and government could begin to
address the problem of rising benefit costs.
26See also GAO, Private Pensions: Participants Need Information on Risks
They Face in Managing Pension Assets at and during Retirement. GAO-03-810
(Washington, D.C.: July 29, 2003).
Aside from such different viewpoints, most panelists noted that the
employer-sponsored system of benefits in its current form may not be
sustainable, largely because productivity growth is unlikely to support
rising benefit costs.27 Given the potential for this unsustainability,
they noted that employers and employees will be forced to continue making
trade-offs between wages and benefits.
Concluding Observations
While public policy has focused on the rise of health care costs as it
affects today's retirees, it is apparent that these expenses are also
having an effect on current workers and their employers. The growth in
real costs is significant, especially given the decrease in participation
among those eligible. While a number of factors could influence an
employee's decision not to participate in employer-sponsored benefits,
cost is certainly one of them.
In the United States, retirement income rests on a proverbial
"three-legged stool." This is income derived from Social Security,
employer-sponsored pension plans, and personal savings-all requiring
investment over the working life of the employee. For pensions, the
ongoing shift to defined contribution plans will require that Americans
become far more educated and resourceful to successfully manage the
associated risk. With regard to defined benefit plans, it will be
imperative that they are not underfunded so that current and future
retirees are not put at risk or that taxpayers are not asked to pay when
companies default on their obligations.
Rising health care and retirement costs affect both employers and
employees. Employers may turn to using more contingent workers to whom
they may not need to pay benefits and to a workforce overseas. From the
employees' perspectives, as the cost of benefits rises, they will be
confronted with continued trade-offs in their compensation packages.
For the nation itself, health care and retirement are part of a large and
growing fiscal challenge. As policy makers deliberate over public policy
support for retirees, they will want to be cognizant of the related
challenge posed by the trends in the cost and availability of
employer-sponsored compensation.
27Over the last two decades, the average level of productivity-which
affects the level of compensation employers may choose to offer-has
increased. Between 1980 and 1995, the average annual growth in labor
productivity per hour was 1.6 percent. Between 1996 and 1999, this average
annual growth increased to 2.7 percent. Between 2000 and 2004, the average
annual growth was 3.3 percent.
Agency Comments
We requested comments on a draft of this report from the departments of
Labor and Health and Human Services. We received technical comments from
the Bureau of Labor Statistics and the Employee Benefits Security
Administration at the Department of Labor and from the Agency for
Healthcare Research and Quality at the Department of Health and Human
Services. We also provided experts with the section of the draft that
characterized the exchange at the expert panel. We incorporated comments
where appropriate.
We are sending copies of this report to the Secretaries of Health and
Human Services and Labor, relevant congressional committees, and other
interested parties. Copies will be made available to others upon request.
In addition, the report will be available at no charge on GAO's Web site
at http://www.gao.gov . Please contact me at (202) 512-7003 if you or your
staff have any questions about this report. Other major contributors to
this report are listed in appendix IV.
Sigurd R. Nilsen Director, Education, Workforce, and Income Security
Issues
Appendix I: Scope and Methodology Appendix I: Scope and Methodology
To determine recent trends in employers' total compensation costs and the
factors contributing to the trends, we obtained data from the Department
of Labor's Bureau of Labor Statistics (BLS). We used the BLS' Employer
Costs for Employee Compensation (ECEC), which is derived from data
collected in the BLS' National Compensation Survey (NCS).1 Although
employers spend funds on benefits and may change the benefit package based
on cost increases to control spending, BLS characterizes its survey data
as "costs" to employers. As such, we report on costs to employers. NCS
data are collected from a sample of establishments and include information
about the hourly costs of the components of total compensation for a
number of establishments and employee characteristics. Samples are
selected using a methodology called probability proportional to employment
size, which means that establishments with larger employment have a
greater chance of selection. Weights are then applied to establish the
estimates. Survey coverage includes private sector establishments with one
or more workers and state and local governments with one or more workers.
Agricultural, private households, and the federal government are not
included in the survey. Our analysis focuses on private sector employers'
hourly costs for total compensation, wages and salaries, and total
benefits. Within total benefits, we focus on the three most costly
discretionary benefits-paid leave, health insurance, and retirement
benefits. Costs are calculated for active workers and do not include costs
for retiree benefits. We analyzed data for the period 1991 to 2005.2 All
data are from the first quarter of each year. Those data that were not
available from BLS's on-line resources were obtained directly from BLS.
In the ECEC, costs are measured as the average employer costs per employee
hour worked for wages and salaries and total benefits. To control for the
effect of inflation, we adjusted all dollars to 2004 terms by using the
BLS's Consumer Price Index Research Series (CPI-U-RS) for 2004. The
CPI-U-RS presents an estimate of the CPI for all urban consumers from 1978
to 2004 that incorporates most of the improvements in the CPI calculations
made by BLS over that time period.
1The NCS data is also used to produce the Employment Cost Index (ECI),
which measures the change in employer costs for wages and benefits. Both
the ECI and the ECEC are published quarterly. The NCS survey also provides
data on benefit plans, which was previously collected in the Employee
Benefits Survey. See http://www.bls.gov/ncs/home.htm for more detailed
information about the NCS.
2While BLS has been collecting data on employee benefits since the 1950s,
these years represent the most comprehensive data available.
We used a z-test to test whether the costs in 2005 were statistically
significantly different from the costs in 1991. BLS provided us with the
relative standard errors (RSE) for the years 2000 to 2003, which BLS
officials contend provide reasonable estimates of what the RSEs are for
the earlier data. To ensure the greatest level of confidence, we used the
highest RSE between 2000 and 2003 to ensure a conservative measure of
statistical significance.
Our analysis included the following data elements:
o Total compensation consists of the sum of costs for wages and
salaries and total benefits.
o Wages and salaries are defined as the hourly straight-time wage
rate, or for workers not on an hourly basis, straight-time
earnings divided by the corresponding hours. Straight-time wages
and salary rates are total earnings before payroll deductions and
include production bonuses, incentive earnings, commission
payments, and cost-of-living adjustments.
o Total benefits include legally required benefits (Social
Security, Medicare, federal and state unemployment, and workers'
compensation). Voluntary benefits reflected in the total benefits
calculation are paid leave; supplemental pay (overtime and premium
pay, shift differentials, and nonproduction bonuses); insurance
benefits (life, health, short-term disability, and long-term
disability); retirement and savings benefits; and other benefits
(severance pay and supplemental unemployment plans).
o Paid Leave includes vacation, holidays, sick
leave, and other leave such as personal leave,
military leave, and funeral leave.
o Retirement and Savings includes savings and thrift
plans, defined benefit, and defined contribution
plans. Due to a change in the way BLS classifies
retirement plans, we report on the broader category
of "retirement and savings" in this report. Beginning
in 1996, pension and savings plans within existing
sampling units were examined to determine which were
defined benefits or defined contributions and were
reclassified as such. Although the old divisions
cannot be compared with the new divisions, the
overall category of retirement and savings remains
comparable.
o Health insurance includes medical, stand-alone
dental, and stand-alone vision.
o Establishments are defined as single physical locations, such
as a factory or a retail store, and may be part of a larger firm.
The break-outs for establishment size were provided to us from BLS
as small (1 to 99 employees), medium (100 to 499 employees), and
large (500 or more employees).
o Union status is determined separately for each occupation in an
establishment. An occupation is considered union if all of the
following conditions are met: a labor organization is recognized
as the bargaining agent for workers in the occupation; wage and
salary rates are determined through collective bargaining or
negotiations; and settlement terms, which must include wage
provisions and may include benefit provisions, are embodied in a
signed mutually binding collective bargaining agreement. Not all
employees need to belong to the union for the occupation to be
classified as such.
o Full-time and part-time status is defined by the establishment
reporting the data.
o Industry sectors and industries are based on the Standard
Industrial Classification System (SIC). The industries within each
sector are in table 7. The industry definitions in the NCS changed
in 2004, making data prior to 2004 not comparable to the newer
data. Therefore, we only present industry data for the period 1991
to 2003.
Table 7: Private Industry Sectors and the Industries within those Sectors
Sector and industries Examples
Goods-producing
Construction General contractors, plumbing, electrical
work, carpentry
Manufacturing Durable and nondurable goods
Mining Metal mining, coal mining, gas extraction
Service-providing
Transportation and Public Transportation; public utilities,
Utilities communications; and electric, gas, and
sanitary services
Wholesale trade Durable and nondurable products
Retail trade Food stores, car dealers, eating and drinking
places
Finance, insurance, and real Banking and other credit agencies, and
estate insurance agents and brokers, real estate
agents
Services Business services, health services, hotels,
personal services
Source: Bureau of Labor Statistics, U.S. Department of Labor.
We assessed the reliability of the ECEC data by reviewing BLS
documentation, interviewing BLS staff, and performing electronic tests to
check for outliers or other potential data problems. Based upon these
checks, we determined that the data were sufficiently reliable for the
purposes of our work.
To determine whether employees' costs, participation, or access to
benefits have changed, we relied on data from two sources: (1) the BLS'
National Compensation Survey (NCS) and (2) the Medical Expenditure Panel
Survey-Insurance Component (MEPS IC) administered by the Agency for
Healthcare Research and Quality (AHRQ) at the Department of Health and
Human Services.
The BLS uses the NCS to measure the incidence and provisions of selected
employer provided benefit plans.3 We focused on employee coverage by
retirement and savings plans, including defined contribution and defined
benefit plans, and the provision of paid leave benefits.4 Coverage is not
necessarily the same as participation. For example, NCS produces data on
the availability of sick leave, but not on employees' use of such
benefit.5 In addition, benefits data were not published every year. Data
were available between 1991 and 2003. Despite these issues, we felt the
data were reliable and useful in understanding whether and how employers'
provision of retirement and paid leave has changed over time. We collected
these data from various BLS publications. We assessed the reliability of
the data by reviewing BLS documentation and interviewing BLS staff. Based
upon these checks, we determined that the data were sufficiently reliable
for the purposes of our work.
We used the MEPS IC to provide a detailed analysis of employee access and
participation in employer provided health insurance. The MEPS IC is an
annual survey of establishments that collects information about
employer-sponsored health insurance offerings in the United States. MEPS
IC data are tabulated by the AHRQ and tables are available for the period
1996 through 2003.6 MEPS tables include standard errors, which we used to
determine statistical significance in percentage changes over time. We
received electronic copies of the MEPS IC tables directly from the AHRQ.
3This was formerly called the Employee Benefits Survey (EBS).
4We used the MEPS IC data for information on access and participation in
employer-provided health insurance plans.
5This lack of detail is the reason we used MEPS data.
6See http://www.meps.ahrq.gov/ for more detailed information on MEPS.
The MEPS IC is derived from a random sample of private-sector business
establishments with at least one employee and a sample of state and local
government employers. We focused our analysis on the private-sector only.
The sample contains businesses that existed at the beginning of the sample
year and is supplemented with business births through the third quarter of
that year. The MEPS IC tables are reported both nationally and for
individual states. For our purposes, we focused on the national data only.
We analyzed MEPS IC data to determine the trends in the percentage of
employees at establishments that offer health insurance, the percentage of
employees eligible for health insurance at these firms, the percentage of
eligible employees who enroll in the health insurance plans, and the
average annual premium for employer-provided health insurance for single
workers and the employees' share of these premiums. To control for the
effect of inflation, all premium costs are reported in 2004 terms by using
the BLS's Consumer Price Index for Medical Care. Inflation for medical
care has been great, and using an all items CPI (such as the CPI-U-RS)
would overstate the growth in premium costs.
Our analysis included the following data elements.
o Offer health insurance-whether an establishment makes available
or contributes to the cost of any health insurance plan for
current employees.
o Health insurance plan-an insurance contract that provides
hospital and/or physician coverage to an employee or retiree for
an agreed-upon fee for a defined benefit period, usually a year.
o Single coverage-health insurance that covers the employee only.
Also known as employee-only coverage.
o Employee-a person on the actual payroll. Excludes temporary and
contract workers, but includes the owner or manager if that person
works at the firm.
o Firm-a business entity consisting of one or more business
establishments under common ownership or control. Also known as an
enterprise. A firm represents the entire organization, including
the company headquarters and all divisions, subsidiaries and
branches. A firm may consist of a single-location establishment or
multiple establishments. In the case of a single-location firm,
the firm and establishment are identical.
o Firm size-the total number of employees for the entire firm as
reported on the sample frame. The data were made available in the
following break-outs: 1 to 9 employees, 10 to 24 employees, 25 to
99 employees, 100 to 999 employees, and 1000 or more employees.
o Union status-employers are asked to identify if they have union
or non union employees.
o Full-time and part-time employee-full-time is defined by the
respondent and generally includes employees that work 35 to 40
hours per week. Part-time status is considered an employee not
defined as full-time by the respondent.
o Industry categories-the primary business activity as reported
by the respondent. The industry categories that we report are
based on the Standard Industrial Classification (SIC) codes.7
These definitions match those used in the ECEC (see table 7). The
data were not readily available by industry sector
(goods-producing and service-providing).
We assessed the reliability of the MEPS IC data by reviewing AHRQ
documentation, interviewing AHRQ staff, and performing electronic
tests to check for outliers or other potential data problems.
Based upon these checks, we determined that the data were
sufficiently reliable for the purposes of our work.
To determine the possible implications of changes for private
systems, we convened a panel of 17 experts representing the human
resources field, industries, unions, and academia. Prior to the
panel, we provided the experts with a list of discussion questions
and the completed data analysis. During the half-day discussion,
panelists provided their unique perspectives on the trends we
identified and offered comments on the implications of these
trends. We identified the panelists through consultation with
internal and external parties who work on the issues covered in
this report. We selected individuals who represent a wide variety
of entities that address the issue of workers' benefits and
provide a balance of perspectives to help us understand the
breadth of opinions on the topic. The panel included the following
list of experts.
John Burton, Professor Emeritus, School of Management and Labor
Relations, Rutgers University Kate Sullivan Hare, Executive
Director, Health Care Policy, U.S. Chamber of Commerce Michael
Hirsch, Executive Vice President, Amalgamated Life, America's
Labor Insurance Company Tim Kane, Bradley Fellow in Labor Policy,
Center for Data Analysis, The Heritage Foundation Andrew Klein,
Senior Consultant, Mercer Human Resource Consulting Kathryn Kobe,
Director of Price, Wage, and Productivity Analysis, Economic
Consulting Services Hank Leland, Employee Benefits Analyst,
Service Employees International Union Daniel Meckstroth, Chief
Economist and Council Director, Manufacturers Alliance/MAPI Gordon
Pavy, Collective Bargaining Coordinator, AFL-CIO Bruce Phillips,
Senior Fellow in Regulatory Studies, National Federation of
Independent Business Research Foundation Dallas Salisbury,
President and CEO, Employee Benefit Research Institute Tom
Saquella, President, Maryland Retailers Association Sylvester
Schieber, Vice President-U.S. Director of Benefits Consulting,
Watson Wyatt Worldwide Norma Sharara, Partner, Luse Gorman
Pomerenk & Schick, P.C. Stephen Sleigh, Director of Strategic
Resources, International Association of Machinists and Aerospace
Workers Wayne Wendling, Senior Director of Research, International
Foundation of Employee Benefit Plans Steve Williams, Director of
Research, Society for Human Resource Management
Table 8: Employers' Real Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers, 1991 to
2005
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from
the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
aThe calculation of benefits includes total benefits tracked by
BLS. These benefits include those to which employers are legally
required to make contributions (Social Security, Medicare, federal
and state unemployment, and workers compensation), and voluntary
benefits (paid leave, supplemental pay, insurance plans-life and
health, retirement and savings, and other benefits).
Table 9: Employers' Real Hourly Costs of Employee Total
Compensation for All Workers by Establishment Size, 1991 to 2005
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from
the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Table 10: Employers' Real Hourly Costs of Employee Total
Compensation for All Workers by Full- and Part-time Status, 1991
to 2005
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from
the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
The growth rates for certain groups of employers may be higher
than the aggregated average growth rate due to changes in
employment composition and compensation cost levels overtime.
Table 11: Employers' Real Hourly Costs of Employee Total
Compensation for All Workers by Union Status, 1991 to 2005
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from
the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
The growth rates for certain groups of employers may be higher
than the aggregated average growth rate due to changes in
employment composition and compensation cost levels overtime.
Table 12: Employers' Real Hourly Costs of Employee Total
Compensation for All Workers by Industry Sector, 1991 to 2003
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from
the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
BLS began using new codes to classify industries with the 2004
data. Therefore, 2004 and 2005 data were not comparable to
1991-2003 by industry.
Figure 5: Growth in Real Employer Costs of Employee Wages and
Total Benefits for all Workers by Small Establishment Size, 1991
to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
The growth in wages and salaries for small establishments is not
statistically significant at the 95 percent confidence level while
the growth in total benefits was.
Figure 6: Growth in Real Employer Costs of Employee Wages and
Total Benefits for all Workers by Medium Establishment Size, 1991
to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for medium
establishments are statistically significant at the 95 percent
confidence level.
Figure 7: Growth in Real Employer Costs of Employee Wages and
Total Benefits for all Workers by Large Establishment Size, 1991
to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for large
establishments are statistically significant at the 95 percent
confidence level.
Figure 8: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Full-time Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of
full-time workers is statistically significant at the 95 percent
confidence level.
Figure 9: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Part-time Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of
part-time workers is statistically significant at the 95 percent
confidence level.
Figure 10: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Union Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of
union workers is statistically significant at the 95 percent
confidence level.
Figure 11: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Nonunion Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of
nonunion workers is statistically significantly different from
zero at the 95 percent confidence level.
Figure 12: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Workers in the Service Providing Sector, 1991
to 2003
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers in
the service providing sector is statistically significant at the
95 percent confidence level.
BLS began using new codes to classify industries with the 2004
data. Therefore, 2004 and 2005 data were not comparable to 1991 to
2003 by industry.
Figure 13: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Workers in the Goods Producing Sector, 1991 to
2003
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers in
the goods producing sector is statistically significant at the 95
percent confidence level.
BLS began using new codes to classify industries with the 2004
data. Therefore, 2005 and 2006 data were not comparable to 1991 to
2003 by industry.
Table 13: Employers' Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance for All workers, 1991 to
2005
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from
the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per
employee hour worked. To control for the effect of inflation,
dollars are reported in 2004 terms by using the BLS Consumer Price
Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
7Beginning in 2000, the MEPS used the North American Industry
Classification System (NAICS), which is not directly comparable to the SIC
codes. AHRQ re-estimated their analysis using the older SIC definitions
for us to facilitate comparisons of the industry data over time.
Appendix II: Employers' Real Hourly Costs for Employee Total Compensation,
Wages, and Total Benefits Appendix II: Employers' Real Hourly Costs for
Employee Total Compensation, Wages, and Total Benefits
Wages and
Year Total compensation salaries Total benefitsa
1991 $20.83 $15.07 $5.77
1992 $21.26 $15.26 $6.00
1993 $21.42 $15.27 $6.15
1994 $21.52 $15.30 $6.22
1995 $20.98 $15.03 $5.95
1996 $20.95 $15.08 $5.87
1997 $21.14 $15.34 $5.80
1998 $21.41 $15.60 $5.81
1999 $21.54 $15.72 $5.82
2000 $21.77 $15.89 $5.88
2001 $22.20 $16.20 $6.01
2002 $22.80 $16.60 $6.20
2003 $22.97 $16.58 $6.39
2004 $23.29 $16.64 $6.65
2005 $23.39 $16.60 $6.79
Percentage change
1991-2005 12 10 18
Small (1-99 Medium (100-499 Large (500+
Year workers) workers) workers)
1991 $18.09 $19.33 $27.65
1992 $18.34 $19.70 $28.00
1993 $18.66 $19.54 $28.20
1994 $18.38 $19.98 $29.41
1995 $17.85 $20.07 $28.20
1996 $17.86 $19.94 $28.91
1997 $18.07 $19.90 $29.32
1998 $18.42 $20.27 $29.58
1999 $18.44 $20.56 $29.89
2000 $18.82 $21.17 $29.54
2001 $19.06 $22.38 $30.06
2002 $19.44 $23.10 $31.29
2003 $19.44 $23.23 $31.77
2004 $19.47 $23.91 $32.54
2005 $19.57 $23.65 $33.48
Percentage change
1991-2005 8 22 21
Year Full-time workers Part-time workers
1991 $22.92 $11.30
1992 $23.49 $11.62
1993 $23.78 $11.55
1994 $24.30 $11.08
1995 $23.84 $11.07
1996 $23.97 $11.02
1997 $23.97 $11.27
1998 $24.25 $11.58
1999 $24.43 $11.57
2000 $24.81 $11.79
2001 $25.13 $12.43
2002 $25.80 $12.75
2003 $26.05 $12.74
2004 $26.50 $12.63
2005 $26.69 $12.75
Percentage change 1991-2005 16 13
Year Union Nonunion
1991 $26.65 $19.72
1992 $27.76 $20.06
1993 $28.13 $20.21
1994 $29.32 $20.21
1995 $27.64 $19.94
1996 $27.98 $19.90
1997 $27.89 $20.20
1998 $27.31 $20.60
1999 $28.05 $20.63
2000 $28.39 $20.92
2001 $29.67 $21.33
2002 $30.91 $21.84
2003 $31.50 $21.93
2004 $31.94 $22.28
2005 $32.10 $22.35
Percentage change 1991-2005 21 13
Year Service providers Goods producers
1991 $19.34 $25.02
1992 $19.73 $25.59
1993 $19.89 $25.96
1994 $19.93 $26.30
1995 $19.49 $25.45
1996 $19.50 $25.49
1997 $19.70 $25.65
1998 $20.03 $25.77
1999 $20.19 $25.92
2000 $20.53 $25.84
2001 $21.06 $26.04
2002 $21.70 $26.72
2003 $21.87 $26.96
Percentage change 1991 - 2003 13 8
Wages and Total Benefits
Appendix III: Employers' Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance Appendix III: Employers' Real
Hourly Costs for Employee Paid Leave, Retirement Income, and Health
Insurance
Year Paid leave Retirement income Health insurance
1991 1.42 0.59 1.24
1992 1.44 0.61 1.35
1993 1.42 0.62 1.40
1994 1.40 0.65 1.43
1995 1.34 0.63 1.30
1996 1.33 0.66 1.24
1997 1.34 0.65 1.16
1998 1.35 0.64 1.16
1999 1.36 0.65 1.16
2000 1.40 0.65 1.19
2001 1.47 0.66 1.24
2002 1.51 0.66 1.35
2003 1.51 0.68 1.45
2004 1.50 0.80 1.53
2005 1.49 0.87 1.59
Percentage change 1991-2005 5 47 28
Table 14: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Establishment Size, 1991 to 2005
Small (1-99) Medium (100-499) Large (500+)
Retirement Retirement Retirement
Paid and Health Paid and Health Paid and Health
leave savings insurance leave savings insurance leave savings insurance
1991 $1.03 $0.42 $0.92 $1.28 $0.54 $1.21 $2.32 $0.98 $1.89
1992 $1.01 $0.40 $1.00 $1.29 $0.53 $1.28 $2.35 $1.04 $2.04
1993 $1.03 $0.41 $1.05 $1.23 $0.54 $1.26 $2.28 $1.07 $2.18
1994 $0.99 $0.42 $1.06 $1.24 $0.57 $1.30 $2.38 $1.21 $2.32
1995 $0.93 $0.40 $0.93 $1.24 $0.59 $1.30 $2.24 $1.13 $2.04
1996 $0.93 $0.41 $0.89 $1.23 $0.60 $1.26 $2.33 $1.26 $1.98
1997 $0.92 $0.42 $0.85 $1.24 $0.60 $1.15 $2.36 $1.21 $1.86
1998 $0.94 $0.41 $0.85 $1.25 $0.59 $1.17 $2.39 $1.21 $1.84
1999 $0.94 $0.44 $0.87 $1.26 $0.60 $1.15 $2.44 $1.19 $1.86
2000 $1.01 $0.44 $0.90 $1.35 $0.61 $1.20 $2.39 $1.18 $1.89
2001 $1.09 $0.45 $0.94 $1.48 $0.65 $1.34 $2.42 $1.19 $1.91
2002 $1.11 $0.44 $1.01 $1.54 $0.66 $1.47 $2.54 $1.24 $2.09
2003 $1.08 $0.44 $1.08 $1.55 $0.68 $1.60 $2.57 $1.32 $2.22
2004 $1.04 $0.44 $1.13 $1.56 $0.79 $1.70 $2.62 $1.75 $2.37
2005 $1.04 $0.47 $1.15 $1.54 $0.86 $1.76 $2.69 $1.95 $2.54
Percentage
change
1991-2005 1 12 25 20 61 45 16 99 34
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour
worked. To control for the effect of inflation, dollars are reported in
2004 terms by using the BLS Consumer Price Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Table 15: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Full-time and Part-time Status, 1991 to
2005
Full-time Part-time
Paid Retirement Health Paid Retirement Health
leave and savings insurance leave and savings insurance
1991 $1.65 $0.70 $1.43 $0.37 $0.12 $0.37
1992 $1.68 $0.72 $1.58 $0.39 $0.13 $0.38
1993 $1.66 $0.74 $1.65 $0.38 $0.14 $0.37
1994 $1.68 $0.79 $1.72 $0.33 $0.14 $0.36
1995 $1.63 $0.77 $1.58 $0.31 $0.13 $0.33
1996 $1.65 $0.81 $1.53 $0.29 $0.15 $0.29
1997 $1.63 $0.79 $1.41 $0.32 $0.15 $0.27
1998 $1.64 $0.77 $1.41 $0.31 $0.16 $0.28
1999 $1.66 $0.79 $1.43 $0.32 $0.17 $0.25
2000 $1.72 $0.79 $1.47 $0.36 $0.18 $0.28
2001 $1.79 $0.81 $1.51 $0.39 $0.16 $0.36
2002 $1.84 $0.81 $1.63 $0.42 $0.16 $0.40
2003 $1.85 $0.84 $1.76 $0.39 $0.16 $0.42
2004 $1.84 $0.98 $1.86 $0.37 $0.18 $0.44
2005 $1.85 $1.07 $1.92 $0.37 $0.18 $0.49
Percentage change
1991-2005 12 55 34 -1 48 32
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour
worked. To control for the effect of inflation, dollars are reported in
2004 terms by using the BLS Consumer Price Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Table 16: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Union and Nonunion Status, 1991 to 2005
Union Non Union
Paid Retirement Health Paid Retirement Health
leave and savings insurance leave and savings insurance
1991 $1.93 $1.18 $2.20 $1.32 $0.48 $1.06
1992 $2.05 $1.30 $2.50 $1.33 $0.48 $1.14
1993 $2.03 $1.33 $2.66 $1.31 $0.49 $1.18
1994 $2.09 $1.55 $2.88 $1.28 $0.50 $1.19
1995 $1.91 $1.41 $2.58 $1.25 $0.51 $1.10
1996 $1.95 $1.59 $2.46 $1.24 $0.52 $1.05
1997 $1.85 $1.58 $2.36 $1.27 $0.52 $0.99
1998 $1.82 $1.49 $2.28 $1.28 $0.52 $1.00
1999 $1.88 $1.56 $2.29 $1.28 $0.52 $1.01
2000 $1.92 $1.63 $2.38 $1.33 $0.52 $1.04
2001 $2.04 $1.63 $2.42 $1.40 $0.54 $1.10
2002 $2.19 $1.72 $2.69 $1.43 $0.54 $1.19
2003 $2.25 $1.78 $2.88 $1.42 $0.55 $1.27
2004 $2.22 $2.15 $3.08 $1.41 $0.64 $1.35
2005 $2.18 $2.31 $3.30 $1.41 $0.70 $1.37
Percentage change
1991-2005 13 97 50 7 45 30
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour
worked. To control for the effect of inflation, dollars are reported in
2004 terms by using the BLS Consumer Price Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
Table 17: Employers' Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance by Industry Sector, 1991 to 2003
Services providing sector Goods producing sector
Paid Retirement Health Paid Retirement Health
leave and savings insurance leave and savings insurance
1991 $1.31 $0.49 $1.07 $1.72 $0.89 $1.72
1992 $1.33 $0.49 $1.15 $1.76 $0.93 $1.92
1993 $1.30 $0.50 $1.19 $1.77 $0.99 $2.04
1994 $1.28 $0.51 $1.20 $1.75 $1.07 $2.14
1995 $1.22 $0.51 $1.11 $1.68 $1.00 $1.87
1996 $1.21 $0.56 $1.05 $1.71 $0.96 $1.83
1997 $1.22 $0.54 $0.97 $1.70 $1.00 $1.75
1998 $1.23 $0.54 $0.98 $1.70 $0.95 $1.71
1999 $1.25 $0.55 $0.99 $1.70 $0.95 $1.72
2000 $1.32 $0.56 $1.01 $1.66 $0.92 $1.78
2001 $1.39 $0.59 $1.08 $1.71 $0.89 $1.79
2002 $1.44 $0.59 $1.19 $1.74 $0.92 $1.93
2003 $1.44 $0.59 $1.29 $1.76 $1.01 $2.03
Percentage change
1991-2003 10 22 20 2 14 18
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the
National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour
worked. To control for the effect of inflation, dollars are reported in
2004 terms by using the BLS Consumer Price Index Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are
statistically significant at the 95 percent confidence level.
BLS began using new codes to classify industries with the 2004 data.
Therefore, 2004 and 2005 data were not comparable to 1991 to 2003 by
industry.
Appendix IV: A Appendix IV: GAO Contacts and Acknowledgments
GAO Contact
Sigurd R. Nilsen, Director, (202) 512-7003, [email protected]
Staff Acknowledgments
Patrick di Battista, Assistant Director, and Sara L. Schibanoff,
Analyst-in-Charge, managed this assignment. Others who made key
contributions throughout the assignment include James Pearce, Jean Cook,
and Susan Bernstein. Dan Schwimer provided legal assistance. Marc Molino
and Mimi Nguyen provided assistance with graphics.
(130450)
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Highlights of GAO-06-285 , a report to congressional requesters
February 2006
EMPLOYEE COMPENSATION
Employer Spending on Benefits Has Grown Faster Than Wages, Due Largely to
Rising Costs for Health Insurance and Retirement Benefits
Because most workers rely primarily on their employers to provide both
wages and benefits as part of a total compensation package, the trends in
the costs and availability of employer-sponsored compensation have a
significant bearing on workers' well-being.
Through tax preferences and payroll taxes, federal government policy also
has a bearing on employees' access to benefits and on the costs carried by
employers. The federal government provides significant tax subsidies for
both health insurance plans and qualified retirement plans. In addition,
workers and employers are required to pay taxes that fund Social Security
and Medicare, programs intended to help provide for workers' economic
security and peace of mind in retirement.
In this report, GAO examined federal data on private employers' costs for
active workers and sought perspectives from 17 experts to identify (1)
recent trends in employers' total compensation costs; (2) composition of
the trends; (3) whether employees' costs, participation, or access to
benefits changed; and (4) possible implications of the changes for private
systems.
GAO received technical comments from the Departments of Labor and Health
and Human Services and from some of the experts GAO consulted. These
comments were incorporated as appropriate.
Private employers' average real cost of total compensation (comprising
wages and benefits) for current workers grew by 12 percent between 1991
and 2005. The real costs of benefits grew by close to 18 percent, while
real wages grew by 10 percent. Wages and benefits increased by about the
same percentage for most of the period until 2002, after which time real
wages began to stagnate and real benefit costs continued to grow.
Growth in Real Employer Costs for Employee Total Compensation, Wages, and
Total Benefits for All Workers, 1991 to 2005
The increase in the cost of a total benefits package from 1991 to 2005 was
largely composed of increases in health insurance and retirement income
costs. Paid leave had been the most costly benefit to employers, but by
2005, the cost of health insurance equaled that of paid leave. In
comparison to paid leave and health insurance, retirement income was the
least costly, but it grew by an estimated 47 percent.
During the time under review, employees' access to most benefits remained
stable, but participation rates declined for health benefits as the real
dollar amount of the premiums increased. Between 1991 and 2003, roughly
half of all workers participated in employer-provided retirement plans.
Holidays and vacations were generally available to most workers, but a
smaller percentage of workers had access to personal and sick leave.
A panel of experts from a variety of backgrounds agreed that rising
benefit costs are forcing private employers and their employees to make
increasingly difficult trade-offs between wages and benefits. They noted
that the employer-sponsored system of benefits in its current form may be
unsustainable, largely because productivity growth is unlikely to support
the rising costs of some benefits, especially escalating health insurance
costs.
*** End of document. ***