Although average wages increased from 1994 to 1995, when the figures are adjusted for inflation real average wages actually fell by 30 cents per hour. The press and Clinton administration officials accused business of greedily reducing workers' pay to increase their profits.

What the media and the administration ignored were increases in nonwage employee compensation that mitigated the effect of lower real average wages.

• Employer costs averaged $18.38 per hour for workers in private industry and state and local governments.

• Of this amount, $5.26 went to employee benefits and taxes.

Total employee compensation includes not just wages and salaries, but also the employer's share of Social Security taxes and such fringe benefits as pensions, health and life insurance and workers' compensation. Both of the nonwage portions of compensation have risen sharply over the last 20 years.

• Employer contributions for social insurance took just 7 percent of total compensation in 1974, but rose to 8.6 percent by 1994, the result of numerous increases in Social Security tax rates and the taxable wage base.

• Fringe benefits accounted for 6.3 percent of employee compensation in 1974, but by 1994 they had risen to 9.5 percent of compensation.

It is not surprising that workers received more compensation in the form of benefits, since wages are taxed and benefits are tax free. In fact, studies have found that workers will substitute tax-free benefits for taxable wages when tax rates rise. For example, a 1978 study by Henry Farber of MIT found that union workers valued an additional $1 of fringe benefits 40 percent more than $1 of discretionary income.

The steepest rise in benefits came during the 1970s, when inflation was pushing workers into higher tax brackets. After the Reagan administration got inflation under control and cut tax rates, workers shifted out of benefits and took more of their income in the form of wages.

Since 1990, tax rates have been rising again, and workers have responded by increasing the share of their compensation from tax-free benefits. Thus President Clinton's 1993 tax increase was a major contributor to the relative decline in wages.

There is certainly no trend toward higher profits at the expense of employee compensation. Workers receive almost three-quarters of national income, while corporate profits amount to less than 10 percent. These numbers are very consistent over time.

Source: Bruce Bartlett, "The Truth About Wages," NCPA Brief Analysis No. 177, September 28, 1995, National Center for Policy Analysis, 12770 Coit Rd., Suite 800, Dallas, TX 75251, (972) 386-6272.