"The issue of income inequality has dramatically shifted public attitudes toward economic and fiscal policy, and today dominates the national political debate.
Fueled by the works of economists such as Thomas Piketty, many have accepted as fact that 1) income inequality has increased dramatically, and 2) further redistributive policies must be undertaken to correct the disparity.
Most previous analyses of inequality focused exclusively on comparing the earnings of lower- and higher-paid workers.
By failing to account for total compensation—including employer-provided health care benefits, which make up a far larger share of total compensation for lower earners than for higher earners—such analyses significantly inflated the perceived severity of workers’ earnings inequality.
This pervasive misperception continues to drive ineffective redistributive policies.
...Indeed, the fact that average employer costs for family health coverage exploded from around $4,200 in 1999 to nearly $11,800 in 2013 gives a reasonable explanation for why earnings have stagnated in recent years.
However, not every employee is affected in the same proportion by rising health costs.
For an employer, because of non-discrimination rules in the tax code, the dollar cost of health coverage is the same for low-paid full-time worker as for a high-paid worker.
This means health care costs makes up a far larger share of total compensation for lower earners. Though rising health care costs eat away at earnings growth for everyone, the effects will be largest for the working middle classes because their health costs are so large relative to the rest of their compensation package.
As my study shows, the disparate effect of rising health care costs is not just theory.
From 1996 to 2008, I find that total compensation inequality did not change despite a significant increase in earnings inequality.
The difference between compensation and earnings inequality can almost wholly be attributed to surging health care costs..."
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