To the extent that benefits are a key componentof overall compensation, have benefits increased at a faster ratethan earnings, thus offsetting part of the sluggish growth inwages?(Photo: Shutterstock)

It has been well documented that growth in average employee pay in the United States has struggledto keep up with inflation. Data from the Bureau of Labor Statistics(BLS) indicates that from 2013-2018, average weekly earnings afterinflation (real earnings) increased at only a 1.2% annualizedrate.

That is, while inflation has averaged 1.5% annually over the2013-18 period, wages and salaries have increased by 2.7% per year,a 1.2% difference.

To the extent that benefits are a key component of overallcompensation, have benefits increased at a faster rate thanearnings, thus offsetting part of the sluggish growth in wages?

To begin to analyze this question, we can look in more detail atcompensation data from the BLS. In theaggregate, the share of total benefits as a component of totalcompensation increased from 30.9% in 2013 to 31.7% in 2018.

The main benefits category showing the greatest share of totalcompensation increase was retirement and savings (defined benefit(DB) and defined contribution (DC) plans), which increased from4.7% in 2013 to 5.3% in 2018.

Conversely, the health insurance share decreased from 8.5% to8.3% over the same five-year period.

Growth rates in wages and benefits, as expected, vary by broadoccupational category. Table 1 below indicates that for Managementand Professional workers, benefits have grown at a faster rate thanwage and salary income, with retirement and savings benefits (DBand DC) growing by over 8% annually in the past 5 years.

Table 1: Annualized Growth in Wageand Benefit Components of Compensation 2013-2018

Conversely, benefits items in manufacturing and constructionindustries have grown at similar rates (2% or below) and have grownat a slower rate than benefits for management and professionalworkers.

We can also look at selected urban areas surveyed by the BLS.Table 2 below shows wages, salaries and benefits growing at thefastest rate in the Atlanta and San Francisco areas, followed byNew York and Los Angeles. In Detroit, benefits at least partiallyclosed the lag in total compensation, while for Chicago, a slowgrowth rate in benefits lagged wage growth. It is possible that insome metropolitan areas, the growth rates in benefits are driven byhigher costs of insurance.

Table 2: Annualized Growth in Wageand Benefit Components of Compensation by Metro Area2013-2018

In summary, the primary component of employeecompensation – wage and salaries – has beengrowing, but at a sluggish pace. It appears that benefits taken asa whole have, to some extent, contributed positively to overallcompensation growth over the past five years.

However, it also could be argued that benefits are just becominga bigger piece of a slowly growing pie.

NOTE: Information presented herein is for discussion andillustrative purposes only and is not a recommendation or an offeror solicitation to buy or sell any securities. Past performance isnot a guarantee of future investment results. FredericSlade has over 25 years of experience in the investmentmanagement and retirement services industries. He is SeniorDirector, Investments for Pentegra Retirement Services, a leadingprovider of retirement services to financial institutions andorganizations nationwide, founded by the Federal Home Loan BankSystem in 1943. Mr. Slade manages over $1 billion in internal bondportfolios and provides analytics and strategy for Pentegra'sDefined Benefit and Defined Contribution Plans. Mr. Slade holds aPh.D. in Economics from University of Pennsylvania and a CFA, andhas presented at a number of seminars and conferences.