It’s hard not to feel sympathetic towards the people occupying Zuccotti Park in lower Manhattan and their brethren who have mounted similar protests in cities and on college campuses across the United States. There is a pervasive sense in our country that something is wrong, and that Wall Street financiers have something to do with this sorry state of affairs. One of the charms of the movement is its lack of specific policy demands; once the occupiers come up with a manifesto they become just another interest group, hardly different from the “Republicrats,” whose pettiness and dithering have prevented Congress from enacting any sensible solutions to our current and future economic woes. But so far, the Wall Street occupiers have been eloquent, if misguided, about what they are against, and relatively clueless about what they are for.
One of the main points of discontent is the decline in real incomes of average Americans. A recent study showed that “real median annual household income has fallen significantly more during the economic recovery period from June 2009 to June 2011 than during the recession lasting from December 2007 to June 2009. During the recession, real median annual household income fell by 3.2 percent, from $55,309 in December 2007 to $53,518 in June 2009. During the economic recovery, real median annual household income fell by an additional 6.7 percent, from $53,518 in June 2009 to $49,909 in June 2011.”
Equally troubling is the stagnation in real incomes over a much longer period. In 1977, the median household income was $47,700 in inflation-adjusted terms, meaning that the average family has seen its income rise by a mere 4.6% over the past 34 years. For a generation raised to believe that growing prosperity was its birthright, this is a bitter pill to swallow.
It is tempting to blame this dismal performance on Wall Street, but it would be wrong. Many things have contributed to stagnation in real incomes, among them technological improvement and liberalization of international trade, but one thing that receives scant attention is the cost of health care. Or, to be more precise, the cost of employer-provided health insurance. The two are linked, of course, and the rising cost of health insurance tracks, to a large degree, that of health care itself. The cost of health care has risen at an average of 5% a year since 1986, while overall inflation has averaged less than 3%. Health insurance premiums have increased faster, largely because administrative costs have risen as health care reimbursement grows ever more complicated.
Between 1999 and 2008, premiums for employer-provided health insurance rose six times faster than wages, according to figures from the President’s Council of Economic Advisors. As the graph below illustrates, average total worker compensation has risen at a reasonably good clip, even as take-home pay has stagnated or declined. The rising cost of employer-provided health insurance drives an ever-widening wedge between the total cost of employing a person and the amount of money that person receives. The average annual cost of an employer-provided family health insurance package now stands at more than $13,000, at least some of which could be paid out in wages if employers weren’t saddled with the responsibility for their workers’ health.
President Obama and Congressional leaders had an excellent opportunity to show some imagination when they crafted new health care legislation, but instead of breaking the link between employment and health insurance they strengthened it, introducing penalties for companies that fail to provide insurance to their employees. Employer-provided health insurance is rooted in the wage and price controls of World War II, which made it illegal to give cash raises to workers and pushed companies to find other forms of compensation. There is no conceivable reason for it to exist today. The obligation to provide health insurance reduces labor mobility – people will stick with a job they hate just for the insurance benefit. The prospect of skyrocketing health insurance costs also constitutes a huge disincentive for companies to hire new workers. With unemployment at more than 9%, it is time to delink employment and health insurance. This, far more than imposing confiscatory taxes on the wealthy or throwing a few bankers in jail, could actually restore some hope of a better future to the beleaguered working and middle classes.