The steep climb of supplemental wage benefits
Employees get paid, and their compensation can be divided into (a) wages and salaries and (b) supplements to wages and salaries. The Bureau of Economic Analysis defines supplements to wages and salaries as “employer contributions for employee pension and insurance funds and employer contributions for government social insurance.” This FRED graph shows the fraction of supplements to wages and salaries in total employee compensation from 1950 to 2017. (Note: A past FRED Blog post also discusses compensation, including non-wage benefits.)
We can see a clear trend here: The fraction of these supplements has increased consistently, from less than 8% of total compensation in 1950 to 18% in 1990. Since 1990, though, the series seems fairly stable, hovering between 17% and 20%. The Social Security tax rate exhibits a similar pattern and, thus, may be one of the causes behind this phenomenon. (Specifically, the Social Security tax rate was 1.5% in 1950, was about 5% in the mid-1970s, and has been 6.2% since 1990.)
How this graph was created: Search for and select “Gross Domestic Income: Compensation of Employees Paid: Wages and Salaries.” From the “Edit Graph” panel’s “Modify Frequency” option, choose “Annual.” Next, select the time frame option and change the start date to “1950-01-01.” From the “Edit Graph” panel’s “Customize Data” section, type “Compensation of Employees: Supplements to Wages and Salaries” and select this option to add a second series. In the formula box, enter b/(a+b) and click “Apply” to divide supplemental compensation by total compensation.
Suggested by Makenzie Peake and Guillaume Vandenbroucke.
Want to learn more about employee compensation?
- Income for the top 1% has risen mainly because of higher executive compensation, esp. in the form of stocks, options, and bonuses.
- Remember the 2018 teacher strikes in West Virginia, Oklahoma, Kentucky, Arizona, and Colorado? Wages there are lower than average, but so is the cost of living.
View on FRED, series used in this post:
The National Income and Product Accounts (NIPA) provide a wealth of economic insights by separating data into different classes, one of them being households. FRED makes it especially easy to examine the sources of household income by providing release tables. Here, we used the table for personal income to create the graph above.
Probably to no one’s surprise, wages and salaries make up the largest share of household income. But this share has been steadily shrinking, from 63% in 1947 to 49% today. Proprietors’ income (the income of the self-employed) has also shrunk, from 19% down to 9%.
Obviously, other shares must be growing. Capital income has grown from 8% to 14%. Supplements to wages and salaries (benefits for health, retirement, vacation, etc.) have grown from 5% to 12%. And transfers from the government have grown the most, from 5% to 17%.
How this graph was created: From the Personal Income release table, select these five series and click “Add to Graph.” In the “Edit Graph” tab, go to the “Format” tab to select graph type “Area” and stacking type “Percent.” FYI: FRED lets you change the order of the series as you wish. [NOTE: This stacked area graph displays each of the series as a percent of the total of all five series shown here. The original units of the series are billions of dollars.]
Suggested by Christian Zimmermann.