NCPA - National Center for Policy Analysis

CURRENT FUNDING CAN CREATE GREATER EFFICIENCIES

September 25, 2007

Economists have traditionally warned that a higher minimum wage will cause more people to be unemployed.  But a number of studies point to an even more serious consequence: fewer fringe benefits, including health insurance, say John Goodman, president of the National Center for Policy Analysis, Devon Herrick, a senior fellow with the NCPA, and Richard McKenzie, a professor at the University of California, Irvine.

The reduction in fringe benefits is important because of their large share of total compensation:

  • About one in three employees near the minimum wage has access to such benefits as vacation time, health insurance, holiday pay, employee discounts, uniforms and credit towards college tuition.
  • Average employer costs for health, life and disability insurance benefits, for instance are about 7.1 percent of compensation -- or about $2.10 for each hour worked.
  • Overall, fringe benefits account for up to 30 percent of total employee compensation -- or about 43 cents of benefits for every $1 of cash wages.

Thus, an unintended consequence of minimum wage increases -- like those being proposed in Congress -- will likely be a rise in the number of working Americans who aren't offered health insurance through their jobs and a further increase in the share of health care costs borne by employees who are offered workplace coverage.

Congress can avoid adding to the ranks of the uninsured -- in fact, can make progress toward reducing their number -- by giving employers and employees the option of using the amount of future minimum wage increases for health insurance instead, say Goodman, Herrick and McKenzie.

Source: John Goodman, Devon Herrick and Richard McKenzie, "Current Funding Can Create Greater Efficiencies," Brainstorm NW, September 2007.

 

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