The Impact of Employer Payments for Health Insurance and Social Security on the Premium for Education and Earnings Inequality

by Jane Sneddon Little
May/June 1995

The trend toward increased wage and income inequality that emerged in the 1980s—with "the rich getting richer and the poor poorer"—has attracted a great deal of attention and concern. One aspect of this phenomenon has been the growing premium for education, with the disparity between the wage and salary earnings of the least and best educated rising since 1979. A related observation involves the increased earnings inequality among similar workers, which occurred in the 1970s as well as the 1980s.

This exploratory article seeks to broaden the discussion by asking whether the rising cost of employer-provided health insurance and employer payments for FICA taxes has contributed to the growth in observed and actual inequality among workers over this period. The author examines published and unpublished data from the Current Population Survey for men working full-time and year round. She finds that the decreased availability of jobs with health benefits has had a particularly severe impact on less-skilled workers. As a result, the compensation of full-time male workers has actually become substantially more unequal since 1979 than the traditional measure based on wages alone indicates.

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