United States Government Accountability Office

United States Government Accountability Office
GAO Report to Congressional Requesters
EMPLOYEE
COMPENSATION
Employer Spending on
Benefits Has Grown
Faster Than Wages,
Due Largely to Rising
Costs for Health
Insurance and
Retirement Benefits
February 2006

GAO-06-285
What GAO Found
United States Government Accountability Office
Why GAO Did This Study
Highlights
Accountability Integrity Reliability
February 2006
EMPLOYEE COMPENSATION
Employer Spending on Benefits Has
Grown Faster Than Wages, Due Largely
to Rising Costs for Health Insurance and
Retirement Benefits
Highlights of GAO-06-285, a report to
congressional requesters
Because most workers rely
primarily on their employers to
provide both wages and benefits as
part of a total compensation
package, the trends in the costs
and availability of employersponsored compensation have a
significant bearing on workers’
well-being.
Through tax preferences and
payroll taxes, federal government
policy also has a bearing on
employees’ access to benefits and
on the costs carried by employers.
The federal government provides
significant tax subsidies for both
health insurance plans and
qualified retirement plans. In
addition, workers and employers
are required to pay taxes that fund
Social Security and Medicare,
programs intended to help provide
for workers’ economic security and
peace of mind in retirement.
In this report, GAO examined
federal data on private employers’
costs for active workers and sought
perspectives from 17 experts to
identify (1) recent trends in
employers’ total compensation
costs; (2) composition of the
trends; (3) whether employees’
costs, participation, or access to
benefits changed; and (4) possible
implications of the changes for
private systems.
GAO received technical comments
from the Departments of Labor and
Health and Human Services and
from some of the experts GAO
consulted. These comments were
incorporated as appropriate.
Private employers’ average real cost of total compensation (comprising
wages and benefits) for current workers grew by 12 percent between 1991
and 2005. The real costs of benefits grew by close to 18 percent, while real
wages grew by 10 percent. Wages and benefits increased by about the same
percentage for most of the period until 2002, after which time real wages
began to stagnate and real benefit costs continued to grow.
Growth in Real Employer Costs for Employee Total Compensation, Wages, and Total
Benefits for All Workers, 1991 to 2005
The increase in the cost of a total benefits package from 1991 to 2005 was
largely composed of increases in health insurance and retirement income
costs. Paid leave had been the most costly benefit to employers, but by 2005,
the cost of health insurance equaled that of paid leave. In comparison to paid
leave and health insurance, retirement income was the least costly, but it
grew by an estimated 47 percent.
During the time under review, employees’ access to most benefits remained
stable, but participation rates declined for health benefits as the real dollar
amount of the premiums increased. Between 1991 and 2003, roughly half of
all workers participated in employer-provided retirement plans. Holidays
and vacations were generally available to most workers, but a smaller
percentage of workers had access to personal and sick leave.
A panel of experts from a variety of backgrounds agreed that rising benefit
costs are forcing private employers and their employees to make
increasingly difficult trade-offs between wages and benefits. They noted that
the employer-sponsored system of benefits in its current form may be
unsustainable, largely because productivity growth is unlikely to support the
rising costs of some benefits, especially escalating health insurance costs.
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For more information, contact Sigurd R.
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Contents
Letter 1
Results in Brief 3
Background 5
Average Compensation Costs Grew by 12 Percent between 1991
and 2005, with Benefits Outgrowing Wages by 8 Percentage
Points 8
The Increase in Employers’ Cost of Benefits Was Largely
Composed of Increases in the Cost of Health Insurance and
Retirement Benefits 12
Employees’ Access to Benefits Remained Generally Stable, but
Employees Face Greater Costs and Assume More Investment
Risk 17
Experts Agreed That Rising Benefit Costs Are Forcing Private
Employers and Their Employees to Make Trade-Offs between
Wages and Benefits 24
Concluding Observations 26
Agency Comments 27
Appendix I Scope and Methodology 28
Appendix II Employers’ Real Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits 35
Appendix III Employers’ Real Hourly Costs for Employee Paid
Leave, Retirement Income, and Health Insurance 49
Appendix IV GAO Contacts and Acknowledgments 54
Tables
Table 1: Employers’ Real Average Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers,
1991 to 2005 8
Page i GAO-06-285 Employee Compensation
Table 2: Growth in Employers’ Real Hourly Costs for Employee
Total Compensation, Wages, and Total Benefits by
Employer Type, 1991 to 2005 11
Table 3: Employers’ Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance, 1991 to 2005 13
Table 4: Percentage Changes in Employers’ Hourly Costs of
Employee Paid Leave, Retirement Income, and Health
Insurance for All Workers by Employer Type, 1991 to 2005 16
Table 5: Participation in Employer-Provided Defined Benefit and
Defined Contribution Retirement Plans for All Workers
and Full-time Workers, 1990 to 2003 22
Table 6: Percent of Workers Offered Employer-Provided Paid
Leave, 1990 to 2003 23
Table 7: Private Industry Sectors and the Industries within those
Sectors 30
Table 8: Employers’ Real Hourly Costs for Employee Total
Compensation, Wages, and Total Benefits for All Workers,
1991 to 2005 35
Table 9: Employers’ Real Hourly Costs of Employee Total
Compensation for All Workers by Establishment Size, 1991
to 2005 36
Table 10: Employers’ Real Hourly Costs of Employee Total
Compensation for All Workers by Full- and Part-time
Status, 1991 to 2005 37
Table 11: Employers’ Real Hourly Costs of Employee Total
Compensation for All Workers by Union Status, 1991 to
2005 38
Table 12: Employers’ Real Hourly Costs of Employee Total
Compensation for All Workers by Industry Sector, 1991 to
2003 39
Table 13: Employers’ Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance for All workers,
1991 to 2005 49
Table 14: Employers’ Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance by
Establishment Size, 1991 to 2005 50
Table 15: Employers’ Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance by Full-time and
Part-time Status, 1991 to 2005 51
Table 16: Employers’ Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance by Union and
Nonunion Status, 1991 to 2005 52
Page ii GAO-06-285 Employee Compensation
Table 17: Employers’ Real Hourly Costs for Employee Paid Leave,
Retirement Income, and Health Insurance by Industry
Sector, 1991 to 2003 53
Figures
Figure 1: Growth in Real Employer Hourly Costs for Employee
Total Compensation, Wages, and Total Benefits for All
Workers, 1991 to 2005 10
Figure 2: Growth in Real Hourly Employer Costs of Employee Paid
Leave, Retirement Income, and Health Insurance for All
Workers, 1991-2005 14
Figure 3: Eligibility and Participation in Employer-Provided Health
Insurance for All Employees by Employer Characteristics,
1996 to 2003 19
Figure 4: Average Annual Real Premium for Employer-Provided
Health Insurance of a Single Worker and Share Paid by
Employees by Employer Characteristics, 1996 to 2003 20
Figure 5: Growth in Real Employer Costs of Employee Wages and
Total Benefits for all Workers by Small Establishment
Size, 1991 to 2005 40
Figure 6: Growth in Real Employer Costs of Employee Wages and
Total Benefits for all Workers by Medium Establishment
Size, 1991 to 2005 41
Figure 7: Growth in Real Employer Costs of Employee Wages and
Total Benefits for all Workers by Large Establishment
Size, 1991 to 2005 42
Figure 8: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Full-time Workers, 1991 to 2005 43
Figure 9: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Part-time Workers, 1991 to 2005 44
Figure 10: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Union Workers, 1991 to 2005 45
Figure 11: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Nonunion Workers, 1991 to 2005 46
Figure 12: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Workers in the Service Providing
Sector, 1991 to 2003 47
Figure 13: Growth in Real Employer Costs of Employee Wages and
Total Benefits for Workers in the Goods Producing
Sector, 1991 to 2003 48
Page iii GAO-06-285 Employee Compensation
Abbreviations
AHRQ Agency for Healthcare Research and Quality
BLS Bureau of Labor Statistics
CPI-U-RS Consumer Price Index Research Series
ECEC Employer Costs for Employee Compensation
ECI Employment Cost Index
MEPS Medical Expenditure Panel Survey
MEPS IC Medical Expenditure Panel Survey-Insurance Component
NAICS North American Industry Classification System
NCS National Compensation Survey
RSE relative standard error
SIC Standard Industrial Classification
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Page iv GAO-06-285 Employee Compensation
United States Government Accountability Office
Washington, DC 20548
February 24, 2006
The Honorable Edward M. Kennedy
Ranking Minority Member
Committee on Health, Education, Labor
and Pensions
United States Senate
The Honorable Patty Murray
Ranking Minority Member
Subcommittee on Employment and
Workplace Safety
Committee on Health, Education, Labor
and Pensions
United States Senate
Trends in the costs and availability of employer-sponsored
compensation—wages, health insurance, retirement income, and paid
leave—have a significant bearing on U.S. workers and U.S. industry.
Traditionally, employers used robust compensation packages to attract
and retain talented workers in order to maintain their competitiveness.
However, in today’s changing global environment, some employers are
citing compensation costs as an obstacle to competing against foreign
businesses where the cost of doing business is lower. As a result,
employers, in the absence of sufficient growth in productivity, may alter
compensation packages or ask workers to accept a greater responsibility
for such costs in the future.
Through tax subsidies and payroll taxes, federal government policy also
has a bearing on employees’ access to benefits and on the costs carried by
employers. The federal government provides significant tax subsidies for
both health insurance plans and qualified retirement plans. In offering
these subsidies, the federal government seeks to promote health care and
retirement income for individuals and families. In addition, workers and
employers are required to pay taxes that fund various programs. These
include Social Security and Medicare, programs intended to provide
financial security in retirement, as well as contributions to the
Unemployment Insurance program, which partially replaces income for
workers who are involuntarily unemployed. In this way the private system
of employer sponsored benefits works in tandem with social insurance
programs to promote the well-being of workers and retirees.
Page 1 GAO-06-285 Employee Compensation
Given the significance of employer-sponsored compensation for the U.S.
workforce and the economy, we have examined federal data on employee
compensation for current workers in private industries to identify
(1) recent trends in employers’ total compensation costs—including both
wages and benefits; (2) the composition of these trends; (3) whether
employees’ costs, participation, or access to benefits have changed; and
(4) the possible implications of those changes for private systems.
Specifically, we examined data from two federal surveys: the Bureau of
Labor Statistics’ (BLS) National Compensation Survey (NCS) and the
Agency for Healthcare Research and Quality’s Medical Expenditure Panel
Survey (MEPS). We used NCS data to determine trends in private
employer costs for wages and salaries, total benefits (including those that
employers are legally required to contribute to, such as Social Security),
and specific employer-provided benefits—retirement income, health
insurance, and paid leave—for 1991 through 2005. All data are from the
first quarter of each year. Although employers spend funds on benefits and
may change the benefit package based on cost increases to control
spending, BLS characterizes its survey data as “costs” to employers. As
such, we refer to costs to employers in our analysis. The NCS data reflect
employers’ costs for active employees and do not include costs for
benefits employers may provide to retirees. We also used NCS data to
examine trends in current employee participation in retirement plans and
paid leave between 1990 and 2003.
We used MEPS data to determine for 1996 through 2003 the trends in
current employees’ access to and participation in health insurance
benefits, and the premium cost to private employers and their employees.
We examined cost and participation data in the aggregate and whenever
possible by industry sector (goods-producing and service-providing),
industry type (such as manufacturing), establishment size, workers’ fulltime and part-time status, and workers’ union and nonunion status. The
NCS measures costs per employee hour worked, and MEPS measures
costs as an annual average. We report the data as they were measured.
Because the data are for multiple years, we report all costs in 2004 dollars
to adjust for inflation. In reviewing both NCS and MEPS data, we
determined that they were reliable for our purposes.
In addition to examining data, we convened a panel of 17 experts
representing the human resources field, industries, unions, and academia
to discuss the trends in the cost and availability of worker benefits. We
completed our work between May 2005 and December 2005 in accordance
Page 2 GAO-06-285 Employee Compensation
with generally accepted government auditing standards. For additional
discussion of our scope and methodology, see appendix I.
After controlling for inflation, the average cost of total compensation
(comprising wages and benefits) for employers grew by 12 percent
between 1991 and 2005, but increases in benefit costs outpaced wages in
the most recent years. The real costs (inflation-adjusted) of total benefits,
which represented roughly a quarter of total compensation, grew by
approximately 18 percent, while real wages grew by 10 percent. Wages and
benefits increased by about the same percentage from 1991 to 2002, after
which time wages began to stagnate and benefit costs continued to grow.
In addition, since 2002, increases in benefit costs outpaced wages among
all types of employers. For example, increases in benefits surpassed those
for wages for employers of both union and nonunion workers. However,
regarding total compensation increases in costs varied by types of
employers. Specifically, the increases in average total compensation costs
were greater for employers with medium and large establishments, fulltime workers, and union workers, as opposed to those with small
establishments, part-time workers, and nonunion workers.
Results in Brief
The increase in the cost of a total benefits package from 1991 to 2005 was
largely composed of increases in the cost of providing health insurance
and retirement income. In combination with paid leave, these benefits
comprised almost 60 percent of benefit packages. Paid leave had
traditionally been the most costly benefit to employers, but by 2005, the
cost of health insurance equaled that of paid leave. This occurred, in part,
because health insurance costs, adjusted for inflation, grew by 28 percent
since 1991 while the costs for paid leave grew by only 5 percent. Of the
three benefits, retirement income was the least costly, even though it grew
by an estimated 47 percent during the period, largely between 2003 and
2005. In part, this rapid growth occurred because the stock market, bonds,
and other investments were not delivering returns that allowed employers
to maintain funding levels for defined benefits plans—those that guarantee
a payout. Some benefit cost increases were greater for certain types of
employers and employees. For example, while large establishments saw a
34 percent increase in health insurance costs between 1991 and 2005,
medium-sized establishments saw an increase of 45 percent.
During the time under review, employees’ access to benefits remained
stable, but participation rates declined for health benefits, some costs have
been shifted to employees, and they have assumed greater investment risk.
Between 1996 and 2003, the percentage of employees at establishments
that offered health insurance did not change and employers continued to
Page 3 GAO-06-285 Employee Compensation
pay approximately the same share of the premium for employee health
insurance, but a smaller percentage of employees participated as the real
dollar amount of the premiums increased. Some employees also saw
increases in their deductibles and co-payments during this time, according
to the expert panelists we convened. With regard to retirement, half of all
workers participated in employer-provided retirement plans between 1991
and 2003, but the types of plans shifted more toward defined contribution
plans, under which employees assume the investment risk. With regard to
paid leave, holidays and vacations were generally available to most
workers between 1991 and 2003, but a smaller percentage of workers had
access to personal leave and sick leave.
A panel of experts from a variety of backgrounds (including human
resources, industry, unions and academia) reviewed the trends we found
in employee compensation and noted that rising benefit costs—increases
in the cost of health insurance and retirement income—are forcing private
employers and their employees to make trade-offs between wages and
benefits. Maintaining health care and pensions is the main priority for
workers, according to union representatives, who said that workers are
foregoing wage increases in order to maintain benefits. Panelists discussed
changes occurring in the types of employer-sponsored retirement and
health care benefits offered and noted that trends in worker benefits are
shifting toward increasing responsibility and risk to the employee. It was
noted that these shifts will require increased education in order for
employees to make informed decisions. Panelists discussed implications
for increasing benefit costs for both employers and employees, noting that
employers may try to remain competitive in a global environment by
limiting increases in compensation, by locating some or all of their
production activity overseas, and by using more contingent workers. It
was also noted that businesses have concerns about their ability to take on
long-term liabilities associated with certain benefit packages. The expert
panelists noted that productivity growth is unlikely to support recent
rising costs of benefits, and in the absence of any major changes, rising
benefit costs are challenging employers’ ability to offer health insurance
and retirement income.
We requested comments on a draft of this report from the departments of
Labor and Health and Human Services. We received technical comments
from the Bureau of Labor Statistics and the Employee Benefits Security
Administration at the Department of Labor and from the Agency for
Healthcare Research and Quality at the Department of Health and Human
Services. We also provided experts with the section of the draft that
Page 4 GAO-06-285 Employee Compensation
characterized the exchange at the expert panel. We incorporated
comments where appropriate.
Currently, U.S. workers rely primarily on their employers to provide both
wages and benefits (such as paid leave, retirement, and health insurance)
as part of a total compensation package, with wages comprising
approximately 70 percent of total compensation. Of the benefits package
employers provide to employees, almost one-third is mandated by law, and
includes contributions to programs such as Social Security, Medicare,
workers’ compensation, and unemployment insurance, and other
programs. The remaining portion of the benefits package is discretionary
and typically includes paid leave, retirement income, and health
insurance—some of the more costly benefits.
Background
Over the last century, employer-sponsored benefits have become an
increasingly important part of compensating workers. Prior to the turn of
the 20th century, workers relied primarily on their own, their families’, or
the communities’ resources in the event of a health or economic
emergency. With the advent of the industrial revolution in the United
States, unions began to offer disability and death coverage to workers in
order to protect them against workplace risks of factory work. The tight
labor market of World War II, along with Supreme Court rulings and
federal legislation, helped make benefits a legitimate part of collective
bargaining and, in part, fueled the offering of employer-sponsored
benefits.
Outside the benefits that are legally required, those benefits that
employers choose to provide serve a number of purposes. From a business
perspective voluntary benefits assist employers to attract and retain highly
skilled workers. For example, pension plans can be a means of attracting
workers, reducing turnover, and encouraging productivity. Defined benefit
pension plans, which are typically offered as periodic payments over a
specified period beginning at retirement age, can be used to foster a
worker’s long-term commitment to his or her employer. Defined
contribution pension plans, which are individual accounts to which
employers and/or employees make contributions, may be attractive to
employees who desire more portable benefits. In deciding to offer
benefits, companies must assess the nature of their particular workforce
to determine if offering benefits is a necessary employment inducement.
Page 5 GAO-06-285 Employee Compensation
Employers may also choose to sponsor benefit plans because of favorable
federal tax treatment for certain forms of compensation.1
To encourage
them to establish and maintain pension plans, the federal government
provides preferential tax treatment under the Internal Revenue Code for
plans that meet certain requirements. A purpose of tax preferences for
employer-sponsored pensions is to encourage savings for workers’
retirement.2
Pension tax preferences are structured to strike a balance
between providing incentives for employers to start and maintain
voluntary, tax-qualified pension plans and ensuring participants receive an
equitable share of the tax-favored benefits. In fiscal year 2004, the federal
government was expected to forgo an estimated $95 billion in federal
income tax revenue due to the tax exclusion for employer-sponsored
pension plans.3
Tax policies also contain significant tax benefits for
employer-sponsored health insurance and medical care. Most notable, the
tax exclusion for health care permits the value of employer-paid health
insurance premiums to be excluded from employees’ taxable earnings for
income taxes. It also excludes the value of the premiums from the
calculation of Social Security and Medicare payroll taxes for both
employers and employees. The tax exclusion is credited with increasing
health coverage for employees. The risk pooling under group health
insurance allows employees to obtain insurance at lower costs than the
individual insurance market.4
The federal government was expected to
1
Employees in higher tax brackets have greater incentive to seek compensation through tax
preferred benefits. See GAO, Government Performance and Accountability: Tax
Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined,
GAO-05-690 (Washington, D.C.: Sept. 23, 2005).
2
While workers’ cash earnings are taxed immediately, pension plan participants typically do
not include their employer’s or their own contributions (and the investment earnings on
these contributions) to a qualified plan in determining their income tax liability until they
receive benefits. The employer is also entitled to a current deduction (within certain limits)
for contributions to a tax-qualified plan even though contributions are not currently
included in an employee’s income. See GAO, Answers to Key Questions about Private
Pension Plans, GAO-02-745SP (Washington, D.C.: Sept. 18, 2002).
3
This reflects the U.S. Department of the Treasury’s estimates for defined benefit and
defined contribution plans sponsored by all employers (including federal, state, and local
governments). These estimates measure the income tax revenue loss from exempting
employer contributions and pension investment earnings offset by taxes paid on current
pension benefits. Employer pension contributions are also exempt from Social Security
and Medicare payroll taxes.
4
Some researchers believe that the unlimited availability of the exclusion for employerprovided health insurance has led to excessive use of health care services, which has
helped to drive up health care prices faster than the overall price level.
Page 6 GAO-06-285 Employee Compensation
forgo an estimated $153 billion in taxes in fiscal year 2004 due to the
exclusion of employer contributions for health care.5
Recent developments are leading employers to make decisions about the
provision of the employer-based benefits system. An aging population with
longer life expectancies increases the long-term obligations of companies
that provide defined benefit pension plans. Some companies have cited
this obligation as a contributing reason for declaring bankruptcy,
reorganizing, and terminating large plans of this type. Advances in
expensive medical technology, increased use of high-cost services and
procedures, and an aging population have contributed to escalating health
care costs. Advances in other technologies have stepped up competition
from foreign firms by increasing global competition. In response to such
competition, U.S. firms have continued to look for ways to reduce their
costs, such as offshoring and using contingent workers (many of whom
are not offered benefits).
In addition to employer-sponsored benefits, multiple federal programs
supplement workers’ and retirees’ benefits. For example, Social Security
pays monthly cash benefits to more than 36 million eligible retired or
disabled workers.6
Intended to complement retirement incomes, in many
cases Social Security may provide the only source of such retirement
income. In addition, the federal-state Medicaid program provides health
insurance to certain low-income individuals including older Americans in
need of long-term care who meet financial eligibility and other
requirements. Most recent figures show Medicare provides health
insurance to 35 million individuals age 65 years and more than six million
disabled individuals under age 65.7
5
This assumes payroll tax revenue losses amount to half of the $102 billion in income tax
revenue losses estimated by the U.S. Department of the Treasury.
6
Recipients as of June 2005. Social Security also provides benefits to dependent survivors.
7
See also GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 15, 2005) and Older
Workers: Demographic Trends Pose Challenges for Employers and Workers, GAO-02-85
(Washington, D.C.: Nov. 16, 2001).
Page 7 GAO-06-285 Employee Compensation
Private employers’ average cost of total compensation (comprised of
wages and benefits) for current workers grew by 12 percent between 1991
and 2005, but benefit costs outpaced wages in the most recent years after
controlling for inflation. The increases in average total compensation costs
were greater for employers with medium and large establishments, fulltime workers, and union workers, than for those with small
establishments, part-time workers, and nonunion workers. The overall real
costs of benefits grew by 18 percent, while real wages grew by 10 percent.
Benefits represented more than a quarter of total compensation costs.
Average
Compensation Costs
Grew by 12 Percent
between 1991 and
2005, with Benefits
Outgrowing Wages by
8 Percentage Points
While Growth in
Compensation Costs
Fluctuated between 1991
and 2005, Average Benefit
Cost Increases Had
Outgrown Average Wage
Increases by the End of the
Period
On average, overall employers’ inflation-adjusted cost for total
compensation rose about 12 percent between 1991 and 2005. Both
components of total compensation—wages and benefits—had also grown
after adjusting for inflation, but at different rates. By the end of the period,
the cost of total benefits grew by approximately 18 percent and wages had
increased by 10 percent (see table 1). By 2005, benefits accounted for
29 percent of total compensation while wages made up 71 percent of the
workers’ compensation package.
Table 1: Employers’ Real Average Hourly Costs for Employee Total Compensation,
Wages, and Total Benefits for All Workers, 1991 to 2005
1991 2005 Percentage change
Total compensation $20.83 $23.39 12
Wages and salaries $15.07 $16.60 10
Total benefitsa
$5.77 $6.79 18
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
Wages and total benefits may not add up to equal total compensation due to rounding.
a
The calculation of benefits includes total benefits tracked by BLS. These benefits include those to
which employers are legally required to make contributions (Social Security, Medicare, federal and
state unemployment, and workers compensation), and voluntary benefits (paid leave, supplemental
pay, insurance plans—life and health, retirement and savings, and other benefits).
Page 8 GAO-06-285 Employee Compensation
Across the 15 years under examination, the cost of wages and benefits
generally grew in tandem, albeit at different rates (see fig. 1). The
noteworthy exception was after 2002 when benefit costs continued in a
steep ascent and wages began to flatten, resulting in an almost
8 percentage point difference between the growth rates of the two. The
recent divergence between benefits and wages is not unprecedented; there
was a 6 percentage point difference between wage increases and benefit
cost increases in 1994. However, what makes the divergence between the
growth of wages and benefits after 2002 compelling is that it is preceded
by a steady increase for both. The result, therefore, has been a
significantly larger real dollar cost to employers—roughly $1,000 more per
year in benefit costs for each full-time employee—when comparing 1994 to
2005.
Page 9 GAO-06-285 Employee Compensation
Figure 1: Growth in Real Employer Hourly Costs for Employee Total Compensation,
Wages, and Total Benefits for All Workers, 1991 to 2005
90
95
100
105
110
115
120
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Total compensation
Wages and salaries
Total benefits
Notes: Growth in each category between 1991 and 2005 is statistically significant at the 95 percent
confidence level.
Data represent costs to private employers only.
The calculation of benefits includes total benefits tracked by BLS. These benefits include those to
which employers are legally required to make contributions (Social Security, Medicare, federal and
state unemployment, and workers compensation), and voluntary benefits (paid leave, supplemental
pay, insurance plans—life and health, retirement and savings, and other benefits).
Page 10 GAO-06-285 Employee Compensation
Increases in the Costs of
Benefits Outpaced Wage
Growth among All Types of
Employers, Although
Average Cost Increases
Varied
As was the case in the aggregate, by 2005, growth in the real cost of
benefits outpaced the increase in wages for each type of employer (see
table 2). For employers of union workers this effect was even more
pronounced; these employers experienced benefit cost increases greater
than wage increases over most of the time period and saw several years of
no growth in wages. This pattern of benefit growth outpacing wage growth
rates was least pronounced for employers of part-time workers, but still
true.8
(See app. II, fig. 5 to 13 for all employers.)
Table 2: Growth in Employers’ Real Hourly Costs for Employee Total Compensation, Wages, and Total Benefits by Employer
Type, 1991 to 2005
In percent

Total compensation
growth, 1991-2005
Wages growth,
1991-2005
Total benefit cost
growth, 1991-2005
Benefits as a
proportion of total
compensation, 2005
Aggregate compensation 12 10 18 29
Type of employer
Small establishments
(1-99 workers) 8 7 12 26
Medium establishments
(100-499 workers) 22 19 31 30
Large establishments
(500+ workers) 21 17 31 33
Full-time workers 16 14 24 30
Part-time workers 13 12 15 21
Unionized workers 21 14 32 37
Nonunionized workers 13 11 20 28
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
8
BLS began using new codes to classify industries with the 2004 data. Therefore, data
comparable to 1991 to 2003 were not available by industry. Although we could not look at
the data across the complete time period, for industry sectors, the trends appear to follow a
similar pattern. For example, for employers in the service-providing sector, growth in
wages flattened in 2002 while an increase in the cost of benefits continued (see app. II, fig.
12 and 13). Under the old industry codes, the goods-producing sector included the
following industries: mining, construction, and manufacturing. The service-providing sector
included the following industries: transportation and utilities; wholesale trade; retail trade;
finance, insurance, and real estate; and services. Within the industry sectors the following
industries showed statistically significant increases in wages: manufacturing (7 percent),
retail trade (7 percent), and services (17 percent). The following industries showed
statistically significant increases in total benefits: manufacturing (12 percent); wholesale
trade
(15 percent); finance, insurance, and real estate (34 percent); and services (18 percent).
Page 11 GAO-06-285 Employee Compensation
Notes: Bold signifies that percentage changes between 1991 and 2005 are statistically significant at
the 95 percent confidence level.
Data represent costs to private employers only.
The growth rates for certain groups of employers may be higher than the aggregated average growth
rate due to changes in employment composition and compensation cost levels overtime.
While employers uniformly saw average real benefit costs grow more than
average real wages, the overall increase in total compensation varied by
employer type. Employers at medium (100 to 499 workers) and large
establishments (500 or more workers) experienced increases in total
compensation costs of roughly 20 percent. In contrast, small
establishments did not experience statistically significant increases in total
compensation costs. Employers’ total compensation costs for full-time
workers increased by 16 percent as compared with the 13 percent increase
for part-time workers. Employers of unionized workers saw their total
compensation costs grow by 21 percent as compared to the 13 percent
increase experienced by employers of nonunion workers.9
(See app. II,
tables 8 to 12 for all employers.)
The increase in the cost of a total benefits package from 1991 to 2005 was
largely composed of increases in the cost of providing health insurance
and retirement income. Paid leave had traditionally been the most costly
benefit to employers, but by 2005, the cost of health insurance equaled that
of paid leave. Of the three benefits, retirement income was the least costly,
even though it grew by an estimated 47 percent in real terms during the
period, largely between 2004 and 2005.
The Increase in
Employers’ Cost of
Benefits Was Largely
Composed of
Increases in the Cost
of Health Insurance
and Retirement
Benefits
9
Although 2004-2005 data for industry sectors are not comparable with earlier years, we did
find that from 1991 to 2003 employers in the service-providing sector saw total
compensation costs increase by 13 percent. This compares with an 8 percent increase in
the goods producing sector. Only the manufacturing (8 percent); finance, insurance, and
real estate (20 percent); and services (17 percent) industries showed statistically significant
changes in total compensation.
Page 12 GAO-06-285 Employee Compensation
The increase in the real cost of a total benefits package from 1991 to 2005
was largely composed of increases in the real cost of providing health
insurance and retirement income. (See table 3 and fig. 2.) Paid leave had
traditionally been the most costly benefit to employers, but by 2005, the
cost of health insurance equaled that of paid leave.10 This occurred, in part,
because health insurance costs grew by 28 percent while the costs for paid
leave did not show significant growth during the period under study. Of
the three benefits, retirement income was the least costly, even though it
grew by an estimated 47 percent during the period, largely between 2004
and 2005. In combination with paid leave, these three benefits represented
on average almost 60 percent of an employee’s total benefit package and
over 80 percent of employers’ costs for voluntary benefits.11
Employers’ Costs for
Health Insurance and
Retirement Income
Increased over 27 Percent
between 1991 and 2005
Table 3: Employers’ Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance, 1991 to 2005
1991 2005
Percentage
change
Paid leave $1.42 $1.49 5
Retirement income $0.59 $0.87 47
Health insurance $1.24 $1.59 28
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
10There was no statistically significant difference between the costs of paid leave and
health insurance at the 95 percent confidence level. Paid leave costs are tied to wages and
salaries since employees are generally paid at the same wage rate when using paid leave.
11Other voluntary benefits included in the National Compensation Survey include
supplemental pay, life insurance, short-term and long-term disability, and other benefits,
such as severance pay.
Page 13 GAO-06-285 Employee Compensation
Figure 2: Growth in Real Hourly Employer Costs of Employee Paid Leave,
Retirement Income, and Health Insurance for All Workers, 1991-2005
90
100
110
120
130
140
150
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Paid leave
Retirement and savings
Health insurance
Notes: Growth in retirement income and health insurance between 1991 and 2005 are statistically
significant at the 95 percent confidence level while the growth in paid leave is not.
Data represent costs to private employers only.
Expert panelists discussed underlying factors driving trends in real costs
for employer-sponsored benefits from 1991 to 2003. Regarding trends in
retirement income, an expert noted that employers decreased their
contributions to funds for defined benefit plans during the 1990s, which
was reflected in a decrease in employer spending for retirement income.
According to the Bureau of Labor Statistics,12 defined-benefit pension plan
assets grew rapidly in the middle to late 1990s as the stock market
continued to rise, so employers often did not need to contribute funds to
defined-benefit pension plans. Stock prices generally fell from April 2000
12See Joseph R. Meisenheimer II, “Real Compensation, 1979 to 2003: analysis from several
data sources,” Monthly Labor Review, Volume 128, Number 5 (Washington, D.C.: Bureau of
Labor Statistics, Department of Labor; May 2005).
Page 14 GAO-06-285 Employee Compensation
to February 2003,
13 and interest rates on bonds and other investments
remained low, requiring employers to contribute more funding to definedbenefit plans beginning in 2003 to meet minimum funding requirements.14
Recent increases in employer costs for retirement benefits can be
attributed to a similar phenomenon. Legislation enacted in 2004—the
Pension Funding Equity Act—provided 2-year relief for businesses,
allowing contributions to be reduced compared to what would have
otherwise been required.
In the case of health care benefits, in addition to increases in the cost of
providing medical services, several factors were noted to drive trends in
employer costs. These include the health insurance underwriting cycle, the
emergence of managed care, competition, and consolidation in the health
care industry. In the underwriting cycle, health insurance companies
forecast premium costs and then set their prices either higher to maximize
profitability or lower to maximize market share. In the early 1990s,
managed care plans lowered their premium prices in order to increase
market share, fueling price competition among health insurance
companies. However, later in the decade, many plans moved away from
tightly managed health care plans. As one expert noted, in the late 1990s,
insurer consolidation and mergers led to a more concentrated industry.
Research in this area suggests that many of the remaining plans shifted
their strategies from gaining market share to improving profitability,
stimulating premium increases and spurring the upward trend in costs for
employers.15
For Most Employers,
Retirement Income
Showed the Greatest
Percentage Increase
Most types of employers experienced the largest percentage increases in
costs for retirement income compared to the growth in costs for health
insurance and paid leave between 1991 and 2005 (see table 4). This was
true for employers whether they had union or nonunion employees, or
whether they employed part-time or full-time workers. Small
establishments were the one exception; health insurance represented their
greatest cost increase. Nevertheless, the real dollar costs for health
13In commenting on this report, BLS reported that an additional reason for the change in
retirement costs may be the way in which benefit cost levels are collected and calculated.
14Defined benefit plans are required to make an actuarial evaluation annually to determine
their minimum funding requirements.
15See Joy M. Grossman and Paul B. Ginsburg, “As The Health Insurance Underwriting Cycle
Turns: What Next?” Health Affairs, Volume 23, Number 6, (November/December 2004).
Page 15 GAO-06-285 Employee Compensation
insurance and paid leave remained larger than retirement income costs for
all employers.16 Appendix III, tables 13 to 17 provide real costs for paid
leave, retirement income, and health insurance for each employer
characteristics between 1991 and 2005.17
Table 4: Percentage Changes in Employers’ Hourly Costs of Employee Paid Leave,
Retirement Income, and Health Insurance for All Workers by Employer Type, 1991
to 2005
Paid
leave
Retirement
income
Health
insurance
Aggregate 5 47 28
Type of employer
Small establishment
(1-99 workers) 1 12 25
Medium establishment
(100-499 workers) 20 61 45
Large establishment
(500+ workers) 16 99 34
Full-time workers 12 55 34
Part-time workers -1 48 32
Union workers 13 97 50
Non-Union workers 7 45 30
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Bold signifies that percentage changes between 1991 and 2005 are statistically significant at
the 95 percent confidence level.
Data represent costs to private employers only.
16The one exception to this trend was for employers of union workers in 2005. For that
year, the cost of retirement income was higher than paid leave. However, the cost of health
insurance remained higher than both paid leave and retirement income.
17While comparable data covering the 2004-2005 period are not available for industry
sectors, from 1991 to 2003 available data show the largest percentage increase in benefits
costs for the goods-producing sectors was in health insurance. The growth in retirement
income was largest for employers in the service-providing sector during this period.
Page 16 GAO-06-285 Employee Compensation
During the time under review, employees’ access to benefits has remained
stable, but participation rates declined for health benefits, some costs have
shifted to employees, and they have assumed more investment risk.
Between 1996 and 2003, the percentage of employees at establishments
that offered health insurance did not change. Also, employers continued to
pay approximately the same share of the premium for employee health
insurance, but a smaller percentage of employees participated as the real
dollar amount of the premiums increased. Some employees also saw
increases in their deductibles and co-payments during this time, according
to the expert panelists we convened. With regard to retirement income,
half of all workers participated in employer-provided retirement plans
between 1991 and 2003, but the types of plans shifted more toward defined
contribution plans, under which employees assume the investment risk.
With regard to paid leave, holidays and vacations were generally available
to all workers between 1990 and 2003, but a smaller percentage of workers
had access to personal leave and sick leave.
Employees’ Access to
Benefits Remained
Generally Stable, but
Employees Face
Greater Costs and
Assume More
Investment Risk
The Share of Health Care
Premiums Paid by
Employees and Employers
Remained Relatively
Stable, but Employee
Participation Declined
Between 1996 and 2003, the percentage of employees who worked at
establishments offering health insurance to their employees remained at
about 87 percent. However, the percentage of those employees eligible
for the benefit decreased to 79 percent in 2003 (see fig. 3). Moreover, of
those who were eligible, the percentage who participated in their
companies’ plans decreased from 86 to 80 percent. During this period, real
premiums for health insurance for single workers increased by
34 percent—from an annual average of $2,706 to $3,633. Employees’
share of these premiums showed no statistically significant increase over
18
19
the time period under review and ranged between 16 and 18 percent.
However, their real dollar contribution increased from an annual average
of $465 to $633, after adjusting for inflation. Some experts have noted that
18Data presented on premiums, the percentage of workers at establishments offering health
insurance, the percentage of workers eligible for health insurance at firms offering the
benefit, and the percentage of eligible workers who enroll in the benefit are from the
Medical Expenditure Panel Survey-Insurance Component (MEPS IC) and represent the
years 1996 to 2003. The data used for this analysis did not allow us to assess the adequacy
of coverage, or any change in quality. (See app. I for more details.)
19Premium costs presented here are for single workers coverage. Family coverage
premiums increased by 43 percent between 1996 and 2003—from an annual average of
$6,732 to $9,654. The real premium included both the employee’s and employer’s share. To
control for the effect of inflation in health insurance premiums, dollars are reported in 2004
terms by using the BLS Consumer Price Index for Medical Care. Inflation in medical care
has been great, and using an all items CPI would overstate the growth in premium costs.
Page 17 GAO-06-285 Employee Compensation
some employees’ deductibles and co-payments also increased during this
period.
The percentage of establishments offering insurance, the percentage of
employees eligible, and the percentage of eligible employees enrolled
ranged across all types of employers. This suggests that some employees
were more likely to receive employer-sponsored health insurance than
others (see fig. 3). For example, the percentage of employees who worked
at small firms (1 to 9 employees) offering health insurance was 46 percent
compared with 99 percent for those in firms of 1,000 or more employees.
The same was true for the percentage of employees eligible to participate
in the health insurance plans offered by companies. For example, of those
employed part-time, 32 percent were eligible while 89 percent of those
who worked full-time were eligible. This was also the case for
participation among those eligible. For most types of employers, over
75 percent of eligible employees enrolled in the company’s health plan.
This trend was true across firm sizes, for most industries, and union
status. The exception to this trend was in retail where the enrollment rate
was 67 percent and for part-time workers at 48 percent.
Page 18 GAO-06-285 Employee Compensation
Figure 3: Eligibility and Participation in Employer-Provided Health Insurance for All Employees by Employer Characteristics,
1996 to 2003
Note: Bold signifies that percentage changes between 1996 and 2003 are statistically significant at
the 95 percent confidence level.
The health insurance premium increases seen overall were true for every
type of employer regardless of characteristics, such as firm size or
industry. For each type, the average annual single worker premiums
increased between 1996 and 2003 by at least 24 percent (see fig. 4). By
2003, the average premium ranged between $3,445 and $4,278, after
adjusting for inflation. The mining industry experienced the largest
increase over the time period, while premiums for employers and workers
in the transportation and utilities industry increased the least. Employees’
Page 19 GAO-06-285 Employee Compensation
shares of these premiums ranged between 12 percent and 21 percent. At
the high end of the range were employees in the retail industry, which also
had one of the largest declines in enrollment across the period examined.
Figure 4: Average Annual Real Premium for Employer-Provided Health Insurance of
a Single Worker and Share Paid by Employees by Employer Characteristics, 1996 to
2003
4,002
3,633 34
32
36
39
39
31
34
34
43
35
42
24
37
39
33
30
35
26
3,724
3,622
3,580
3,580
3,782
3,588
3,921
3,594
4,278
3,662
3,558
3,464
3,554
3,445
3,733
3,765
Firm size
Aggregate
Total premiums in 2003 (in dollars)
Percentage of change
in annual average premium
(1996-2003)
Less than 10 employees
10 to 24 employees
25 to 99 employees
100 to 999 employees
1000 or more employees
Less than 50 employees
50 or more employees
Source: GAO analysis of Agency for Healthcare Research and Quality (AHRQ) data from the Medical Expenditure Panel Survey (MEPS).
Union status
Union employees
Non-union employees
Industries
Mining
Construction
Manufacturing
Transportation
and utilities
Wholesale trade
Retail trade
Finance, insurance,
and real estate
Services
17
12
15
18
18
18
15
18
18
13
15
16
17
16
18
21
16
17
Percentage
of employee
contribution (2003)
Notes: Bold signifies that percentage changes between 1996 and 2003 are statistically significant at
the 95 percent confidence level.
Page 20 GAO-06-285 Employee Compensation
Premiums are measured as the annual average cost for employers and employees for single
workers. To control for the effect of inflation, dollars are reported in 2004 terms by using the BLS
Consumer Price Index for Medical Care. Data on premium amounts are not available by full- or parttime status.
About Half of Employees
Had Access to Retirement
Income Plans, with a Trend
Toward Defined
Contribution Plans
Employee participation in retirement plans did not change significantly
between 1990 and 2003.
20 Roughly half of all workers participated in an
employer-sponsored retirement plan, and closer to 60 percent of those
who were full-time employees did so. However, there was a noticeable
shift that occurred from defined benefit retirement plans to defined
contribution plans (see table 5).21 Employers who sponsor defined benefit
retirement plans agree to make future payments during the employee’s
retirement. To meet this obligation employers are responsible for making
contributions sufficient to fund promised benefits, investing and managing
plan assets, and bearing the investment risk. Under defined contribution
retirement plans, employers may make contributions but have no
obligations regarding the future sufficiency of those funds. Thus, this shift
from defined benefit to defined contribution plans shifts the responsibility
for providing for one’s retirement income to the employee. In addition,
while participation in most defined benefit plans is automatic (depending
on one’s position), many defined contribution plans require employee
contributions before the employer makes a contribution.22
20Data on the availability of retirement and paid leave benefits to employees are from the
BLS’ National Compensation Survey. Available data did not allow us to assess the adequacy
of the retirement income available to plan participants.
21For this analysis, we relied on previous analysis issued by BLS that did not include trends
across time by industry, for union or nonunion workers, or part-time workers. See William
J. Wiatrowski, “Documenting Benefits Coverage for all Workers,” originally posted May 26,
2004, revision posted December 21, 2005; U.S. Department of Labor, Bureau of Labor
Statistics, http://www.bls.gov/opub/cwc/print/cm20040518ar01p1.htm (last accessed Jan.
24, 2006).
22See GAO, Private Pensions: Issues of Coverage and Increasing Contribution Limits for
Defined Contribution Plans, GAO-01-846 (Washington, D.C.: Sept. 17, 2001).
Page 21 GAO-06-285 Employee Compensation
Table 5: Participation in Employer-Provided Defined Benefit and Defined Contribution Retirement Plans for All Workers and
Full-time Workers, 1990 to 2003
Workers participating in a
retirement plan regardless of
type of plan Defined benefit Defined contribution
Year
All
workers
Full-time
workers
All
workers
Full-time
workers
All
workers
Full-time
workers
1990-1991 53% 60% 35% 39% 34% 39%
1991-1992 54% 61% 34% 39% 35% 40%
1992-1993 53% a 32% a 35% a
1993-1994 50% 58% 28% 33% 34% 40%
1994-1995 51% 60% 28% 33% 37% 44%
1995-1996 a
61% a
32% a
46%
1996-1997 53% 62% 27% 32% 40% 47%
1998 a a a a a a
1999 48% 56% 21% 25% 36% 42%
2000 48% 55% 19% 22% 36% 42%
2001 a a a a a a
2002 a a a a a a
2003 49% 58% 20% 24% 40% 48%
Source: GAO presentation of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
a
Data were not collected or not tabulated in a given year. The entire private sector economy was not
surveyed at the same time until 1999, which results in data that span multiple and overlapping
periods prior to then.
Note: Percentages do not add up to 100 because workers might be enrolled in both defined benefit
and defined contribution plans.
Paid Leave Was Generally
Available to All Workers,
but Certain Types of Leave
Were Less Available to
Part-Time Workers
The percentage of employees offered paid leave was relatively stable
between 1990 and 2003. Across the period, three-quarters or more of all
workers were eligible for paid holidays and vacations. Full-time workers
were more likely than part-time workers to be offered employer-sponsored
paid leave (see table 6).23
23For this analysis, we relied on previous analysis issued by BLS that did not include trends
across time by industry, for union or nonunion workers, or part-time workers. See William
J. Wiatrowski, “Documenting Benefits Coverage for all Workers,” originally posted May 26,
2004, revision posted December 21, 2005; U.S. Department of Labor, Bureau of Labor
Statistics, http://www.bls.gov/opub/cwc/print/cm20040518ar01p1.htm (last accessed
Jan. 24, 2006).
Page 22 GAO-06-285 Employee Compensation
Table 6: Percent of Workers Offered Employer-Provided Paid Leave, 1990 to 2003
Year Holidays Vacations
Personal
leave
Funeral
leave
Jury duty
leave
Military
leave
Sick
leave
1990-1991 All workers 79% 83% 14% 56% 62% 32% 50%
Full-time workers 88% 92% 16% 63% 70% 37% 57%
1991-1992 All workers 77% 82% 14% 57% 63% 31% 52%
Full-time workers 87% 92% 16% 65% 71% 37% 60%
1992-1993 All workers 77% 82% 15% 57% 64% 30% 50%
Full-time workers a a a a a a a
1993-1994 All workers 75% 80% 14% 56% 63% 27% 47%
Full-time workers 86% 92% 16% 65% 72% 33% 57%
1994-1995 All workers 74% 80% 15% 55% 62% 25% 44%
Full-time workers 85% 92% 17% 65% 71% 30% 52%
1995-1996 All workers a a a a a a a
Full-time workers 84% 91% 18% 64% 71% 30% 54%
1996-1997 All workers 73% 79% 15% 56% 63% 27% 44%
Full-time workers 85% 91% 17% 66% 73% 32% 53%
1998 All workers a a a a a a a
Full-time workers a a a a a a a
1999 All workers 75% 79% a a a a
53%
Full-time workers 87% 90% a a a a
63%
2000 All workers 77% 80% a a a a a
Full-time workers 87% 91% a a a a a
2001 All workers a a a a a a a
Full-time workers a a a a a a a
2002 All workers a a a a a a a
Full-time workers a a a a a a a
2003 All workers 79% 79% a a
70% 50% a
Full-time workers 91% 91% a a
77% 56% a
Source: GAO presentation of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
a
Data were not collected or not tabulated in a given year. The entire private sector economy was not
surveyed at the same time until 1999, which results in data that span multiple and overlapping
periods prior to then.
Page 23 GAO-06-285 Employee Compensation
Experts who reviewed our data found it reflected their experience and
asserted that rising benefit costs have been leading employers and
employees to make increasingly difficult trade-offs between wages and
benefits. Maintaining health care and pensions is the main priority for
workers, according to union representatives who said that workers are
trading wage increases in order to maintain benefits. A panelist noted that
workers consistently choose to preserve health care benefits over
increases in cash compensation. On the other hand, it was noted by a
small business leader that in his experience some employees, particularly
younger people, prefer to increase wages rather than preserve benefits. A
panelist explained that it is the rise in the actual dollar costs of benefits
that is driving both employer’s and employee’s decisions.
Experts Agreed That
Rising Benefit Costs
Are Forcing Private
Employers and Their
Employees to Make
Trade-Offs between
Wages and Benefits
Additionally, our compensation data for the past decade provoked a
number of observations from the panelists regarding the likelihood of
shifting risk to the individual employee. Experts discussed the continuing
shift in employer-sponsored retirement income from defined benefit to
defined contribution plans. One expert predicted the eventual termination
of defined benefit plans, a freeze or decrease in hybrid plans (those that
combine features of defined benefit and defined contribution plans), and a
shift towards 401(k) savings plans (which are a type of defined
contribution plan).24 Panelists also observed that with regard to health
benefits, employers are experimenting with consumer-directed health care
plans, which may also shift more responsibility and risk to the individual
employee.25 In addition, employers are considering changing the way they
offer compensation. Experts agreed that there has been a movement from
fixed to incentive compensation, wherein employers tie cash
compensation to productivity. It was noted that some employers are
turning to stock options in lieu of wage increases. Given the risks implied
for the individual in such private sector plans, for both retirement and
24GAO has found similar trends. See GAO, Private Pensions: Issues of Coverage and
Increasing Contribution Limits for Defined Contribution Plans, GAO-01-846
(Washington, D.C.: Sept. 17, 2001); GAO, Private Pensions: Improving Worker Coverage
and Benefits, GAO-02-225 (Washington, D.C.: Apr. 9, 2002); and GAO, Pension Benefit
Guaranty Corporation: Single-Employer Pension Insurance Program Faces Significant
Long-Term Risks, GAO-04-90 (Washington, D.C.: Oct. 29, 2003).
25Consumer-directed health plans are a relatively new health care plan design. While many
variants exist, such plans generally include three basic precepts: an insurance plan with a
high deductible, a savings account to pay for services under the deductible, and decision
support tools. See GAO, Federal Employees Health Benefits Program: Early Experience
with a Consumer-Directed Health Plan, GAO-06-143 (Washington, D.C: Nov. 21, 2005).
Page 24 GAO-06-285 Employee Compensation
health care, a panelist emphasized that employees will need adequate
education to make informed decisions.26
Panelists also made observations about the rise in compensation costs and
their current and future implications for business and for employees. One
benefits expert stated that if an employer is locked into paying
compensation costs that the productivity of their workers cannot support,
jobs will go elsewhere. A union representative noted that the garment
industry has faced international competitors with lower compensation
costs, which has led to lowered compensation for U.S. workers and a loss
of domestic jobs. It was noted that employers may attempt to remain
competitive by cutting wages and benefits for workers, offshoring jobs,
and increasing the use of contingent workers, who may not be provided
benefits. It was also noted that businesses have concerns about their
ability to sustain long-term liabilities associated with certain benefit
packages.
Experts disagreed on whether or how much of the responsibility for
addressing the rise in benefit costs should rest with the public sector. In
the view of a union spokesperson, such benefits amount to a social good,
something that supports the well-being and overall productivity of society.
A union representative noted that employees who have dropped out of
health insurance plans, especially employees in lower wage industries,
have subsequently relied on public programs in which taxpayers ultimately
bear the cost. Other panelists expressed belief in the marketplace as an
arbiter of resources and said that government or public benefit models are
not a solution to employers’ rising costs for compensation. These panelists
suggested competition would eventually resolve the distribution of
benefits by winnowing out companies that could not attract the kind of
employees needed with the type of compensation they provide. One
panelist emphasized that government, therefore, should have limited
involvement in the provision of employer-sponsored benefits. A human
resources representative suggested that businesses should be allowed to
experiment with different means of providing benefits. On the other hand,
it was also suggested that future solutions to benefit costs would require
both public and private initiative and collaboration. A union representative
26See also GAO, Private Pensions: Participants Need Information on Risks They Face in
Managing Pension Assets at and during Retirement. GAO-03-810 (Washington, D.C.:
July 29, 2003).
Page 25 GAO-06-285 Employee Compensation
noted that partnerships among employers, workers, and government could
begin to address the problem of rising benefit costs.
Aside from such different viewpoints, most panelists noted that the
employer-sponsored system of benefits in its current form may not be
sustainable, largely because productivity growth is unlikely to support
rising benefit costs.27 Given the potential for this unsustainability, they
noted that employers and employees will be forced to continue making
trade-offs between wages and benefits.
While public policy has focused on the rise of health care costs as it affects
today’s retirees, it is apparent that these expenses are also having an effect
on current workers and their employers. The growth in real costs is
significant, especially given the decrease in participation among those
eligible. While a number of factors could influence an employee’s decision
not to participate in employer-sponsored benefits, cost is certainly one of
them.
Concluding
Observations
In the United States, retirement income rests on a proverbial “three-legged
stool.” This is income derived from Social Security, employer-sponsored
pension plans, and personal savings—all requiring investment over the
working life of the employee. For pensions, the ongoing shift to defined
contribution plans will require that Americans become far more educated
and resourceful to successfully manage the associated risk. With regard to
defined benefit plans, it will be imperative that they are not underfunded
so that current and future retirees are not put at risk or that taxpayers are
not asked to pay when companies default on their obligations.
Rising health care and retirement costs affect both employers and
employees. Employers may turn to using more contingent workers to
whom they may not need to pay benefits and to a workforce overseas.
From the employees’ perspectives, as the cost of benefits rises, they will
be confronted with continued trade-offs in their compensation packages.
For the nation itself, health care and retirement are part of a large and
growing fiscal challenge. As policy makers deliberate over public policy
27Over the last two decades, the average level of productivity—which affects the level of
compensation employers may choose to offer—has increased. Between 1980 and 1995, the
average annual growth in labor productivity per hour was 1.6 percent. Between 1996 and
1999, this average annual growth increased to 2.7 percent. Between 2000 and 2004, the
average annual growth was 3.3 percent.
Page 26 GAO-06-285 Employee Compensation
support for retirees, they will want to be cognizant of the related challenge
posed by the trends in the cost and availability of employer-sponsored
compensation.
We requested comments on a draft of this report from the departments of
Labor and Health and Human Services. We received technical comments
from the Bureau of Labor Statistics and the Employee Benefits Security
Administration at the Department of Labor and from the Agency for
Healthcare Research and Quality at the Department of Health and Human
Services. We also provided experts with the section of the draft that
characterized the exchange at the expert panel. We incorporated
comments where appropriate.
Agency Comments
We are sending copies of this report to the Secretaries of Health and
Human Services and Labor, relevant congressional committees, and other
interested parties. Copies will be made available to others upon request. In
addition, the report will be available at no charge on GAO’s Web site at
http://www.gao.gov. Please contact me at (202) 512-7003 if you or your
staff have any questions about this report. Other major contributors to this
report are listed in appendix IV.
Sigurd R. Nilsen
Director, Education, Workforce,
and Income Security Issues
Page 27 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
Page 28 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
To determine recent trends in employers’ total compensation costs and the
factors contributing to the trends, we obtained data from the Department
of Labor’s Bureau of Labor Statistics (BLS). We used the BLS’ Employer
Costs for Employee Compensation (ECEC), which is derived from data
collected in the BLS’ National Compensation Survey (NCS).1
Although
employers spend funds on benefits and may change the benefit package
based on cost increases to control spending, BLS characterizes its survey
data as “costs” to employers. As such, we report on costs to employers.
NCS data are collected from a sample of establishments and include
information about the hourly costs of the components of total
compensation for a number of establishments and employee
characteristics. Samples are selected using a methodology called
probability proportional to employment size, which means that
establishments with larger employment have a greater chance of selection.
Weights are then applied to establish the estimates. Survey coverage
includes private sector establishments with one or more workers and state
and local governments with one or more workers. Agricultural, private
households, and the federal government are not included in the survey.
Our analysis focuses on private sector employers’ hourly costs for total
compensation, wages and salaries, and total benefits. Within total benefits,
we focus on the three most costly discretionary benefits—paid leave,
health insurance, and retirement benefits. Costs are calculated for active
workers and do not include costs for retiree benefits. We analyzed data for
the period 1991 to 2005.2
All data are from the first quarter of each year.
Those data that were not available from BLS’s on-line resources were
obtained directly from BLS.
In the ECEC, costs are measured as the average employer costs per
employee hour worked for wages and salaries and total benefits. To
control for the effect of inflation, we adjusted all dollars to 2004 terms by
using the BLS’s Consumer Price Index Research Series (CPI-U-RS) for
2004. The CPI-U-RS presents an estimate of the CPI for all urban
consumers from 1978 to 2004 that incorporates most of the improvements
in the CPI calculations made by BLS over that time period.
1
The NCS data is also used to produce the Employment Cost Index (ECI), which measures
the change in employer costs for wages and benefits. Both the ECI and the ECEC are
published quarterly. The NCS survey also provides data on benefit plans, which was
previously collected in the Employee Benefits Survey. See
http://www.bls.gov/ncs/home.htm for more detailed information about the NCS.
2
While BLS has been collecting data on employee benefits since the 1950s, these years
represent the most comprehensive data available.
Appendix I: Scope and Methodology
We used a z-test to test whether the costs in 2005 were statistically
significantly different from the costs in 1991. BLS provided us with the
relative standard errors (RSE) for the years 2000 to 2003, which BLS
officials contend provide reasonable estimates of what the RSEs are for
the earlier data. To ensure the greatest level of confidence, we used the
highest RSE between 2000 and 2003 to ensure a conservative measure of
statistical significance.
Our analysis included the following data elements:
• Total compensation consists of the sum of costs for wages and salaries
and total benefits.
• Wages and salaries are defined as the hourly straight-time wage rate, or
for workers not on an hourly basis, straight-time earnings divided by the
corresponding hours. Straight-time wages and salary rates are total
earnings before payroll deductions and include production bonuses,
incentive earnings, commission payments, and cost-of-living adjustments.
• Total benefits include legally required benefits (Social Security,
Medicare, federal and state unemployment, and workers’ compensation).
Voluntary benefits reflected in the total benefits calculation are paid leave;
supplemental pay (overtime and premium pay, shift differentials, and
nonproduction bonuses); insurance benefits (life, health, short-term
disability, and long-term disability); retirement and savings benefits; and
other benefits (severance pay and supplemental unemployment plans).
• Paid Leave includes vacation, holidays, sick leave, and other leave
such as personal leave, military leave, and funeral leave.
• Retirement and Savings includes savings and thrift plans, defined
benefit, and defined contribution plans. Due to a change in the way
BLS classifies retirement plans, we report on the broader category of
“retirement and savings” in this report. Beginning in 1996, pension and
savings plans within existing sampling units were examined to
determine which were defined benefits or defined contributions and
were reclassified as such. Although the old divisions cannot be
compared with the new divisions, the overall category of retirement
and savings remains comparable.
• Health insurance includes medical, stand-alone dental, and standalone vision.
Page 29 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
• Establishments are defined as single physical locations, such as a factory
or a retail store, and may be part of a larger firm. The break-outs for
establishment size were provided to us from BLS as small (1 to 99
employees), medium (100 to 499 employees), and large (500 or more
employees).
• Union status is determined separately for each occupation in an
establishment. An occupation is considered union if all of the following
conditions are met: a labor organization is recognized as the bargaining
agent for workers in the occupation; wage and salary rates are determined
through collective bargaining or negotiations; and settlement terms, which
must include wage provisions and may include benefit provisions, are
embodied in a signed mutually binding collective bargaining agreement.
Not all employees need to belong to the union for the occupation to be
classified as such.
• Full-time and part-time status is defined by the establishment reporting
the data.
• Industry sectors and industries are based on the Standard Industrial
Classification System (SIC). The industries within each sector are in table
7. The industry definitions in the NCS changed in 2004, making data prior
to 2004 not comparable to the newer data. Therefore, we only present
industry data for the period 1991 to 2003.
Table 7: Private Industry Sectors and the Industries within those Sectors
Sector and industries Examples
Goods-producing
Construction General contractors, plumbing, electrical work, carpentry
Manufacturing Durable and nondurable goods
Mining Metal mining, coal mining, gas extraction
Service-providing
Transportation and Public Utilities Transportation; public utilities, communications; and electric, gas, and sanitary
services
Wholesale trade Durable and nondurable products
Retail trade Food stores, car dealers, eating and drinking places
Finance, insurance, and real estate Banking and other credit agencies, and insurance agents and brokers, real estate
agents
Services Business services, health services, hotels, personal services
Source: Bureau of Labor Statistics, U.S. Department of Labor.
Page 30 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
We assessed the reliability of the ECEC data by reviewing BLS
documentation, interviewing BLS staff, and performing electronic tests to
check for outliers or other potential data problems. Based upon these
checks, we determined that the data were sufficiently reliable for the
purposes of our work.
To determine whether employees’ costs, participation, or access to
benefits have changed, we relied on data from two sources: (1) the BLS’
National Compensation Survey (NCS) and (2) the Medical Expenditure
Panel Survey-Insurance Component (MEPS IC) administered by the
Agency for Healthcare Research and Quality (AHRQ) at the Department of
Health and Human Services.
The BLS uses the NCS to measure the incidence and provisions of selected
employer provided benefit plans.3
We focused on employee coverage by
retirement and savings plans, including defined contribution and defined
benefit plans, and the provision of paid leave benefits.4
Coverage is not
necessarily the same as participation. For example, NCS produces data on
the availability of sick leave, but not on employees’ use of such benefit.
5
In
addition, benefits data were not published every year. Data were available
between 1991 and 2003. Despite these issues, we felt the data were reliable
and useful in understanding whether and how employers’ provision of
retirement and paid leave has changed over time. We collected these data
from various BLS publications. We assessed the reliability of the data by
reviewing BLS documentation and interviewing BLS staff. Based upon
these checks, we determined that the data were sufficiently reliable for the
purposes of our work.
We used the MEPS IC to provide a detailed analysis of employee access
and participation in employer provided health insurance. The MEPS IC is
an annual survey of establishments that collects information about
employer-sponsored health insurance offerings in the United States. MEPS
IC data are tabulated by the AHRQ and tables are available for the period
1996 through 2003.6
MEPS tables include standard errors, which we used
3
This was formerly called the Employee Benefits Survey (EBS).
4
We used the MEPS IC data for information on access and participation in employerprovided health insurance plans.
5
This lack of detail is the reason we used MEPS data.
6
See http://www.meps.ahrq.gov/ for more detailed information on MEPS.
Page 31 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
to determine statistical significance in percentage changes over time. We
received electronic copies of the MEPS IC tables directly from the AHRQ.
The MEPS IC is derived from a random sample of private-sector business
establishments with at least one employee and a sample of state and local
government employers. We focused our analysis on the private-sector
only. The sample contains businesses that existed at the beginning of the
sample year and is supplemented with business births through the third
quarter of that year. The MEPS IC tables are reported both nationally and
for individual states. For our purposes, we focused on the national data
only.
We analyzed MEPS IC data to determine the trends in the percentage of
employees at establishments that offer health insurance, the percentage of
employees eligible for health insurance at these firms, the percentage of
eligible employees who enroll in the health insurance plans, and the
average annual premium for employer-provided health insurance for single
workers and the employees’ share of these premiums. To control for the
effect of inflation, all premium costs are reported in 2004 terms by using
the BLS’s Consumer Price Index for Medical Care. Inflation for medical
care has been great, and using an all items CPI (such as the CPI-U-RS)
would overstate the growth in premium costs.
Our analysis included the following data elements.
• Offer health insurance—whether an establishment makes available or
contributes to the cost of any health insurance plan for current employees.
• Health insurance plan—an insurance contract that provides hospital
and/or physician coverage to an employee or retiree for an agreed-upon
fee for a defined benefit period, usually a year.
• Single coverage—health insurance that covers the employee only. Also
known as employee-only coverage.
• Employee—a person on the actual payroll. Excludes temporary and
contract workers, but includes the owner or manager if that person works
at the firm.
• Firm—a business entity consisting of one or more business
establishments under common ownership or control. Also known as an
enterprise. A firm represents the entire organization, including the
company headquarters and all divisions, subsidiaries and branches. A firm
Page 32 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
may consist of a single-location establishment or multiple establishments.
In the case of a single-location firm, the firm and establishment are
identical.
• Firm size—the total number of employees for the entire firm as reported
on the sample frame. The data were made available in the following breakouts: 1 to 9 employees, 10 to 24 employees, 25 to 99 employees, 100 to 999
employees, and 1000 or more employees.
• Union status—employers are asked to identify if they have union or non
union employees.
• Full-time and part-time employee—full-time is defined by the
respondent and generally includes employees that work 35 to 40 hours per
week. Part-time status is considered an employee not defined as full-time
by the respondent.
• Industry categories—the primary business activity as reported by the
respondent. The industry categories that we report are based on the
Standard Industrial Classification (SIC) codes.7
These definitions match
those used in the ECEC (see table 7). The data were not readily available
by industry sector (goods-producing and service-providing).
We assessed the reliability of the MEPS IC data by reviewing AHRQ
documentation, interviewing AHRQ staff, and performing electronic tests
to check for outliers or other potential data problems. Based upon these
checks, we determined that the data were sufficiently reliable for the
purposes of our work.
To determine the possible implications of changes for private systems, we
convened a panel of 17 experts representing the human resources field,
industries, unions, and academia. Prior to the panel, we provided the
experts with a list of discussion questions and the completed data analysis.
During the half-day discussion, panelists provided their unique
perspectives on the trends we identified and offered comments on the
implications of these trends. We identified the panelists through
consultation with internal and external parties who work on the issues
7
Beginning in 2000, the MEPS used the North American Industry Classification System
(NAICS), which is not directly comparable to the SIC codes. AHRQ re-estimated their
analysis using the older SIC definitions for us to facilitate comparisons of the industry data
over time.
Page 33 GAO-06-285 Employee Compensation
Appendix I: Scope and Methodology
covered in this report. We selected individuals who represent a wide
variety of entities that address the issue of workers’ benefits and provide a
balance of perspectives to help us understand the breadth of opinions on
the topic. The panel included the following list of experts.
John Burton, Professor Emeritus, School of Management and Labor
Relations, Rutgers University
Kate Sullivan Hare, Executive Director, Health Care Policy, U.S.
Chamber of Commerce
Michael Hirsch, Executive Vice President, Amalgamated Life, America’s
Labor Insurance Company
Tim Kane, Bradley Fellow in Labor Policy, Center for Data Analysis, The
Heritage Foundation
Andrew Klein, Senior Consultant, Mercer Human Resource Consulting
Kathryn Kobe, Director of Price, Wage, and Productivity Analysis,
Economic Consulting Services
Hank Leland, Employee Benefits Analyst, Service Employees
International Union
Daniel Meckstroth, Chief Economist and Council Director,
Manufacturers Alliance/MAPI
Gordon Pavy, Collective Bargaining Coordinator, AFL-CIO
Bruce Phillips, Senior Fellow in Regulatory Studies, National Federation
of Independent Business Research Foundation
Dallas Salisbury, President and CEO, Employee Benefit Research
Institute
Tom Saquella, President, Maryland Retailers Association
Sylvester Schieber, Vice President-U.S. Director of Benefits Consulting,
Watson Wyatt Worldwide
Norma Sharara, Partner, Luse Gorman Pomerenk & Schick, P.C.
Stephen Sleigh, Director of Strategic Resources, International
Association of Machinists and Aerospace Workers
Wayne Wendling, Senior Director of Research, International Foundation
of Employee Benefit Plans
Steve Williams, Director of Research, Society for Human Resource
Management
Page 34 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Page 35 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Table 8: Employers’ Real Hourly Costs for Employee Total Compensation, Wages,
and Total Benefits for All Workers, 1991 to 2005
Year
Total
compensation
Wages and
salaries
Total
benefitsa
1991 $20.83 $15.07 $5.77
1992 $21.26 $15.26 $6.00
1993 $21.42 $15.27 $6.15
1994 $21.52 $15.30 $6.22
1995 $20.98 $15.03 $5.95
1996 $20.95 $15.08 $5.87
1997 $21.14 $15.34 $5.80
1998 $21.41 $15.60 $5.81
1999 $21.54 $15.72 $5.82
2000 $21.77 $15.89 $5.88
2001 $22.20 $16.20 $6.01
2002 $22.80 $16.60 $6.20
2003 $22.97 $16.58 $6.39
2004 $23.29 $16.64 $6.65
2005 $23.39 $16.60 $6.79
Percentage change
1991-2005 12 10 18
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the 95
percent confidence level.
a
The calculation of benefits includes total benefits tracked by BLS. These benefits include those to
which employers are legally required to make contributions (Social Security, Medicare, federal and
state unemployment, and workers compensation), and voluntary benefits (paid leave, supplemental
pay, insurance plans—life and health, retirement and savings, and other benefits).
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Table 9: Employers’ Real Hourly Costs of Employee Total Compensation for All
Workers by Establishment Size, 1991 to 2005
Year
Small (1-99
workers)
Medium (100-499
workers)
Large (500+
workers)
1991 $18.09 $19.33 $27.65
1992 $18.34 $19.70 $28.00
1993 $18.66 $19.54 $28.20
1994 $18.38 $19.98 $29.41
1995 $17.85 $20.07 $28.20
1996 $17.86 $19.94 $28.91
1997 $18.07 $19.90 $29.32
1998 $18.42 $20.27 $29.58
1999 $18.44 $20.56 $29.89
2000 $18.82 $21.17 $29.54
2001 $19.06 $22.38 $30.06
2002 $19.44 $23.10 $31.29
2003 $19.44 $23.23 $31.77
2004 $19.47 $23.91 $32.54
2005 $19.57 $23.65 $33.48
Percentage change
1991-2005 8 22 21
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
Page 36 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Table 10: Employers’ Real Hourly Costs of Employee Total Compensation for All
Workers by Full- and Part-time Status, 1991 to 2005
Year Full-time workers Part-time workers
1991 $22.92 $11.30
1992 $23.49 $11.62
1993 $23.78 $11.55
1994 $24.30 $11.08
1995 $23.84 $11.07
1996 $23.97 $11.02
1997 $23.97 $11.27
1998 $24.25 $11.58
1999 $24.43 $11.57
2000 $24.81 $11.79
2001 $25.13 $12.43
2002 $25.80 $12.75
2003 $26.05 $12.74
2004 $26.50 $12.63
2005 $26.69 $12.75
Percentage change 1991-
2005
16 13
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the 95
percent confidence level.
The growth rates for certain groups of employers may be higher than the aggregated average growth
rate due to changes in employment composition and compensation cost levels overtime.
Page 37 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Table 11: Employers’ Real Hourly Costs of Employee Total Compensation for All
Workers by Union Status, 1991 to 2005
Year Union Nonunion
1991 $26.65 $19.72
1992 $27.76 $20.06
1993 $28.13 $20.21
1994 $29.32 $20.21
1995 $27.64 $19.94
1996 $27.98 $19.90
1997 $27.89 $20.20
1998 $27.31 $20.60
1999 $28.05 $20.63
2000 $28.39 $20.92
2001 $29.67 $21.33
2002 $30.91 $21.84
2003 $31.50 $21.93
2004 $31.94 $22.28
2005 $32.10 $22.35
Percentage change
1991-2005 21 13
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the 95
percent confidence level.
The growth rates for certain groups of employers may be higher than the aggregated average growth
rate due to changes in employment composition and compensation cost levels overtime.
Page 38 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Table 12: Employers’ Real Hourly Costs of Employee Total Compensation for All
Workers by Industry Sector, 1991 to 2003
Year Service providers Goods producers
1991 $19.34 $25.02
1992 $19.73 $25.59
1993 $19.89 $25.96
1994 $19.93 $26.30
1995 $19.49 $25.45
1996 $19.50 $25.49
1997 $19.70 $25.65
1998 $20.03 $25.77
1999 $20.19 $25.92
2000 $20.53 $25.84
2001 $21.06 $26.04
2002 $21.70 $26.72
2003 $21.87 $26.96
Percentage change 1991 –
2003
13 8
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
BLS began using new codes to classify industries with the 2004 data. Therefore, 2004 and 2005 data
were not comparable to 1991-2003 by industry.
Page 39 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 5: Growth in Real Employer Costs of Employee Wages and Total Benefits for
all Workers by Small Establishment Size, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
The growth in wages and salaries for small establishments is not statistically significant at the 95
percent confidence level while the growth in total benefits was.
Wages and Total Benefits
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 40 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 6: Growth in Real Employer Costs of Employee Wages and Total Benefits for
all Workers by Medium Establishment Size, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for medium establishments are statistically significant
at the 95 percent confidence level.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 41 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 7: Growth in Real Employer Costs of Employee Wages and Total Benefits for
all Workers by Large Establishment Size, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for large establishments are statistically significant at
the 95 percent confidence level.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 42 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 8: Growth in Real Employer Costs of Employee Wages and Total Benefits for
Full-time Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of full-time workers is statistically
significant at the 95 percent confidence level.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 43 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 9: Growth in Real Employer Costs of Employee Wages and Total Benefits for
Part-time Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of part-time workers is statistically
significant at the 95 percent confidence level.
90
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 44 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 10: Growth in Real Employer Costs of Employee Wages and Total Benefits
for Union Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of union workers is statistically
significant at the 95 percent confidence level.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 45 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 11: Growth in Real Employer Costs of Employee Wages and Total Benefits
for Nonunion Workers, 1991 to 2005
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers of nonunion workers is statistically
significantly different from zero at the 95 percent confidence level.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
2004
2005
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 46 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 12: Growth in Real Employer Costs of Employee Wages and Total Benefits
for Workers in the Service Providing Sector, 1991 to 2003
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers in the service providing sector is
statistically significant at the 95 percent confidence level.
BLS began using new codes to classify industries with the 2004 data. Therefore, 2004 and 2005 data
were not comparable to 1991 to 2003 by industry.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 47 GAO-06-285 Employee Compensation
Appendix II: Employers’ Real Hourly Costs
for Employee Total Compensation, Wages,
and Total Benefits
Figure 13: Growth in Real Employer Costs of Employee Wages and Total Benefits
for Workers in the Goods Producing Sector, 1991 to 2003
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Growth in wages and salaries and total benefits for employers in the goods producing sector is
statistically significant at the 95 percent confidence level.
BLS began using new codes to classify industries with the 2004 data. Therefore, 2005 and 2006 data
were not comparable to 1991 to 2003 by industry.
95
100
105
110
115
120
125
130
135
199
1999
2000
2001
2002
2003
8
1991
1992
1993
1994
1995
1996
1997
Growth in employer costs (1991=100)
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Year
Wages and salaries
Total benefits
Page 48 GAO-06-285 Employee Compensation
Appendix III: Employers’ Real Hourly Costs
for Employee Paid Leave, Retirement Income,
and Health Insurance
Page 49 GAO-06-285 Employee Compensation
Appendix III: Employers’ Real Hourly Costs
for Employee Paid Leave, Retirement
Income, and Health Insurance
Table 13: Employers’ Real Hourly Costs for Employee Paid Leave, Retirement
Income, and Health Insurance for All workers, 1991 to 2005
Year Paid leave Retirement income Health insurance
1991 1.42 0.59 1.24
1992 1.44 0.61 1.35
1993 1.42 0.62 1.40
1994 1.40 0.65 1.43
1995 1.34 0.63 1.30
1996 1.33 0.66 1.24
1997 1.34 0.65 1.16
1998 1.35 0.64 1.16
1999 1.36 0.65 1.16
2000 1.40 0.65 1.19
2001 1.47 0.66 1.24
2002 1.51 0.66 1.35
2003 1.51 0.68 1.45
2004 1.50 0.80 1.53
2005 1.49 0.87 1.59
Percentage change
1991-2005 5 47 28
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
Appendix III: Employers’ Real Hourly Costs
for Employee Paid Leave, Retirement Income,
and Health Insurance
Table 14: Employers’ Real Hourly Costs for Employee Paid Leave, Retirement Income, and Health Insurance by Establishment
Size, 1991 to 2005
Small (1-99) Medium (100-499) Large (500+)
Paid
leave
Retirement
and savings
Health
insurance
Paid
leave
Retirement
and savings
Health
insurance
Paid
leave
Retirement
and savings
Health
insurance
1991 $1.03 $0.42 $0.92 $1.28 $0.54 $1.21 $2.32 $0.98 $1.89
1992 $1.01 $0.40 $1.00 $1.29 $0.53 $1.28 $2.35 $1.04 $2.04
1993 $1.03 $0.41 $1.05 $1.23 $0.54 $1.26 $2.28 $1.07 $2.18
1994 $0.99 $0.42 $1.06 $1.24 $0.57 $1.30 $2.38 $1.21 $2.32
1995 $0.93 $0.40 $0.93 $1.24 $0.59 $1.30 $2.24 $1.13 $2.04
1996 $0.93 $0.41 $0.89 $1.23 $0.60 $1.26 $2.33 $1.26 $1.98
1997 $0.92 $0.42 $0.85 $1.24 $0.60 $1.15 $2.36 $1.21 $1.86
1998 $0.94 $0.41 $0.85 $1.25 $0.59 $1.17 $2.39 $1.21 $1.84
1999 $0.94 $0.44 $0.87 $1.26 $0.60 $1.15 $2.44 $1.19 $1.86
2000 $1.01 $0.44 $0.90 $1.35 $0.61 $1.20 $2.39 $1.18 $1.89
2001 $1.09 $0.45 $0.94 $1.48 $0.65 $1.34 $2.42 $1.19 $1.91
2002 $1.11 $0.44 $1.01 $1.54 $0.66 $1.47 $2.54 $1.24 $2.09
2003 $1.08 $0.44 $1.08 $1.55 $0.68 $1.60 $2.57 $1.32 $2.22
2004 $1.04 $0.44 $1.13 $1.56 $0.79 $1.70 $2.62 $1.75 $2.37
2005 $1.04 $0.47 $1.15 $1.54 $0.86 $1.76 $2.69 $1.95 $2.54
Percentage
change
1991-2005 1 12 25 20 61 45 16 99 34
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
Page 50 GAO-06-285 Employee Compensation
Appendix III: Employers’ Real Hourly Costs
for Employee Paid Leave, Retirement Income,
and Health Insurance
Table 15: Employers’ Real Hourly Costs for Employee Paid Leave, Retirement Income, and Health Insurance by Full-time and
Part-time Status, 1991 to 2005
Full-time Part-time
Paid leave
Retirement and
savings
Health
insurance Paid leave
Retirement and
savings
Health
insurance
1991 $1.65 $0.70 $1.43 $0.37 $0.12 $0.37
1992 $1.68 $0.72 $1.58 $0.39 $0.13 $0.38
1993 $1.66 $0.74 $1.65 $0.38 $0.14 $0.37
1994 $1.68 $0.79 $1.72 $0.33 $0.14 $0.36
1995 $1.63 $0.77 $1.58 $0.31 $0.13 $0.33
1996 $1.65 $0.81 $1.53 $0.29 $0.15 $0.29
1997 $1.63 $0.79 $1.41 $0.32 $0.15 $0.27
1998 $1.64 $0.77 $1.41 $0.31 $0.16 $0.28
1999 $1.66 $0.79 $1.43 $0.32 $0.17 $0.25
2000 $1.72 $0.79 $1.47 $0.36 $0.18 $0.28
2001 $1.79 $0.81 $1.51 $0.39 $0.16 $0.36
2002 $1.84 $0.81 $1.63 $0.42 $0.16 $0.40
2003 $1.85 $0.84 $1.76 $0.39 $0.16 $0.42
2004 $1.84 $0.98 $1.86 $0.37 $0.18 $0.44
2005 $1.85 $1.07 $1.92 $0.37 $0.18 $0.49
Percentage change
1991-2005 12 55 34 -1 48 32
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
Page 51 GAO-06-285 Employee Compensation
Appendix III: Employers’ Real Hourly Costs
for Employee Paid Leave, Retirement Income,
and Health Insurance
Table 16: Employers’ Real Hourly Costs for Employee Paid Leave, Retirement Income, and Health Insurance by Union and
Nonunion Status, 1991 to 2005
Union Non Union
Paid leave
Retirement and
savings
Health
insurance Paid leave
Retirement and
savings
Health
insurance
1991 $1.93 $1.18 $2.20 $1.32 $0.48 $1.06
1992 $2.05 $1.30 $2.50 $1.33 $0.48 $1.14
1993 $2.03 $1.33 $2.66 $1.31 $0.49 $1.18
1994 $2.09 $1.55 $2.88 $1.28 $0.50 $1.19
1995 $1.91 $1.41 $2.58 $1.25 $0.51 $1.10
1996 $1.95 $1.59 $2.46 $1.24 $0.52 $1.05
1997 $1.85 $1.58 $2.36 $1.27 $0.52 $0.99
1998 $1.82 $1.49 $2.28 $1.28 $0.52 $1.00
1999 $1.88 $1.56 $2.29 $1.28 $0.52 $1.01
2000 $1.92 $1.63 $2.38 $1.33 $0.52 $1.04
2001 $2.04 $1.63 $2.42 $1.40 $0.54 $1.10
2002 $2.19 $1.72 $2.69 $1.43 $0.54 $1.19
2003 $2.25 $1.78 $2.88 $1.42 $0.55 $1.27
2004 $2.22 $2.15 $3.08 $1.41 $0.64 $1.35
2005 $2.18 $2.31 $3.30 $1.41 $0.70 $1.37
Percentage change
1991-2005 13 97 50 7 45 30
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
Page 52 GAO-06-285 Employee Compensation
Appendix III: Employers’ Real Hourly Costs
for Employee Paid Leave, Retirement Income,
and Health Insurance
Table 17: Employers’ Real Hourly Costs for Employee Paid Leave, Retirement Income, and Health Insurance by Industry
Sector, 1991 to 2003
Services providing sector Goods producing sector
Paid leave
Retirement and
savings
Health
insurance Paid leave
Retirement and
savings
Health
insurance
1991 $1.31 $0.49 $1.07 $1.72 $0.89 $1.72
1992 $1.33 $0.49 $1.15 $1.76 $0.93 $1.92
1993 $1.30 $0.50 $1.19 $1.77 $0.99 $2.04
1994 $1.28 $0.51 $1.20 $1.75 $1.07 $2.14
1995 $1.22 $0.51 $1.11 $1.68 $1.00 $1.87
1996 $1.21 $0.56 $1.05 $1.71 $0.96 $1.83
1997 $1.22 $0.54 $0.97 $1.70 $1.00 $1.75
1998 $1.23 $0.54 $0.98 $1.70 $0.95 $1.71
1999 $1.25 $0.55 $0.99 $1.70 $0.95 $1.72
2000 $1.32 $0.56 $1.01 $1.66 $0.92 $1.78
2001 $1.39 $0.59 $1.08 $1.71 $0.89 $1.79
2002 $1.44 $0.59 $1.19 $1.74 $0.92 $1.93
2003 $1.44 $0.59 $1.29 $1.76 $1.01 $2.03
Percentage change
1991-2003 10 22 20 2 14 18
Source: GAO analysis of Bureau of Labor Statistics (BLS) data from the National Compensation Survey (NCS).
Notes: Costs are measured as the average employer cost per employee hour worked. To control for
the effect of inflation, dollars are reported in 2004 terms by using the BLS Consumer Price Index
Research Series.
Data represent costs to private employers only.
Bold signifies that percentage changes between 1991 and 2005 are statistically significant at the
95 percent confidence level.
BLS began using new codes to classify industries with the 2004 data. Therefore, 2004 and 2005 data
were not comparable to 1991 to 2003 by industry.
Page 53 GAO-06-285 Employee Compensation
Appendix IV:
A
GAO Contacts and
cknowledgments
Page 54 GAO-06-285 Employee Compensation
Appendix IV: GAO Contacts and
Acknowledgments
Sigurd R. Nilsen, Director, (202) 512-7003, [email protected]
Patrick di Battista, Assistant Director, and Sara L. Schibanoff, Analyst-inCharge, managed this assignment. Others who made key contributions
throughout the assignment include James Pearce, Jean Cook, and
Susan Bernstein. Dan Schwimer provided legal assistance. Marc Molino
and Mimi Nguyen provided assistance with graphics.
GAO Contact
Staff
Acknowledgments
(130450)
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