US Wages May Finally Rise, Through Biotechnology

For the last few years, despite robust GDP, productivity growth, and job creation, the average income of US workers has been rising at a very slow rate.  Some of this was attributed to 'outsourcing', but this is not the case, as job creation would also have been weak, rather than just wage growth. 

The reason for low wage growth has been healthcare costs greatly outpacing inflation during 2000-05.  This consumes money that employers would have otherwise distributed towards employee salaries.  Some of the rise in healthcare costs is due to an aging population, and some of this is due to the growing number of illegal immigrants not paying into a system they are using. 

The chart below from the Bureau of Labor Statistics shows how the increased costs of benefits (mostly health insurance) has left little remaining money for salaries to rise.  This is in sharp constrast to the late 1990s, when salaries could rise more rapidly due to subdued increases in healthcare costs. 

In fact, the perception that the economy is weaker now relative to the late 1990s, despite nearly every economic indicator being comparable between the two periods, could be entirely due to this.  People are getting weaker raises even when employers have increased spending on employees each year. 

But we may be over the hump, as the data is finally trending in a favorable direction.  Michael Mandel's blog has observed a decline in some of the technology-related components of healthcare costs.  The costs of medical labs and imaging centers stopped rising altogether in the last year.  Mandel says this may be due to competition, but I think this is due to technology.  Not only are many advanced instruments subject to The Impact of Computing, and thus improving in power and number every year, but new drugs and gene therapies provide treatment that sometimes avoids hospital stays altogether.  Exponentially improving technologies are pervasively moving into medicine to deliver faster, cheaper, more effective treatments, and this saves money even for people who are not users of them. 

If the moderation in the price of high-tech medical costs continues, US wages may rise as employers can pass more on towards salaries instead of health insurance premiums. 

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Comments

[John Hamill]

Very interesting. You must also remember that one of the things that has kept wages stagnant, particularly in the trades, manufacturing, and service industries, is the influx of low payed illegals, especially in the Southwest. The numbers in the past 10-15 years have been enormous, and not only have they held wages down for the working poor, they are a net drain on our health-care budget, thus increasing the burden on other employers, bringing everyones wage rates down.

[GK]

John,

Also read this article, about why the government actually wants the border to be open.

http://futurist.typepad.com/my_weblog/2006/02/what_is_the_rea.html

[Assistant Village Idiot]

I am a cheerleader for the great changes that have occurred in medical technology and a great believer in continued improvement. But working in mental health, I am also aware of the simple fact that people have to accept treatment for it to work. A large percentage of our hospital days are for psychiatric stays.