NCPA - National Center for Policy Analysis

Slow Employment Growth

March 15, 2004

The lack of employment growth continues to be the major political/economic problem facing the country and it likely will remain that way through Election Day. Contributing to the reluctance to hire permanent employees is the rising cost of employment, especially the cost of benefits, says Bruce Bartlett.

Some employers are now arguing that they are at a competitive disadvantage compared with businesses in countries with national health insurance. In the United States businesses mostly pay for health insurance out of sales, whereas in many foreign countries health coverage is paid for by broad-based taxes. According to the Bureau of Labor Statistics:

  • The average cost of creating a new job in the United States last year was about $50,000, based on an hourly compensation cost of $24.48.
  • Of this, only $17.52 was for cash wages; benefits and employment-based taxes paid by employers added the balance of $6.97.
  • The remainder is broken down as follows: taxes, $1.95; insurance (mainly health), $1.86; paid leave, $1.64; retirement, 88 cents; and supplementary pay and miscellaneous, 64 cents.

Clearly benefits have been rising rapidly:

  • In the aggregate, they are up 10.9 percent in the last 3 years, while wages and salaries are up just 1.2 percent, according to the Bureau of Economic Analysis.
  • However, BLS data suggest that benefit costs are rising from a relatively low base; total benefits fell from 28.9 percent of compensation in 1994 to 27 percent in 2000. In the 4th quarter of 2003, they were back up to 28.1 percent.

This pattern mainly resulted from declining health insurance costs during the mid-1990s as the result of the development of health maintenance organizations, says Bartlett.

Source: Bruce Bartlett, "Slow Employment Growth," National Center for Policy Analysis, March 15, 2004.


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