New study suggests one explanation of wage mystery — health insurance

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Simone Groper (left) prepares to receive a flu shot at a Walgreens phramacyin San Francisco.

A new study finds that health insurance premiums have been undermeasured, which possibly helps explain at least part of the reason why wage growth has been so paltry with unemployment so low.

A study of Internal Revenue Service data finds average premiums for employer-sponsored health insurance plans are roughly $1,000 higher than previously thought using data from the Current Population Survey, best known as the survey of households used by the Labor Department to produce monthly unemployment numbers.

The study found that the underestimate was concentrated among higher-income workers. In the top wage quintile, the mean premium was $12,012 using IRS data, and $10,624 using the CPS; in the fourth quintile, the premiums were $9,394 using IRS data and $8,080 using CPS data. Even in the middle quintile, there was a gap, as average premiums were $7,371 using IRS data and $6,625 using CPS data.

A review by Jeff Larrimore of the Federal Reserve and David Splinter of the Joint Committee on Taxation was able to tap into new data that’s courtesy of the Affordable Care Act, since employers with at least 250 employees must report health insurance premiums to the IRS. Even firms without 250 employees have been reporting this information to the agency.

The authors make another point: the rising values of fringe benefits, such as health insurance, may have offset potential wage gains for middle-income workers.

The lack of wage growth has been a persistent surprise for economists with the unemployment rate now at just 3.9%.

Read: Lack of wage acceleration is the main surprise in jobs report, economists say

In the 12 months ending April, average hourly earnings grew just 2.6%, below the roughly 3% to 4% growth typically seen in expansions.

Another compensation measure that includes the value of health insurance and other benefits, the employment cost index, does show marginally faster growth, of 2.8% for private workers in the 12 months ending March.

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