Benefits Costs Impact Wages

March 19, 2007
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GRAND RAPIDS — Employers paid an average $25.52 per hour in total compensation per employee in the U.S., including wages and benefits, in third quarter 2006, according to the Bureau of Labor Statistics. That's up 9.5 percent since the first quarter of 2004.

In the fourth quarter of 2006, total compensation costs for private employers grew by 0.8 percent, concluding 2006 with a total rise of 3.2 percent. For state and local governments, compensation costs increased 4.1 percent in 2006, the bureau reported.

How do wages fare in Michigan, where a perfect storm has created high unemployment and a dramatic loss in high-wage manufacturing jobs?

"If you look at the total private sector, wage gains in that area have, in Grand Rapids, slightly outpaced wages in Michigan," said Bruce Weaver, an economic analyst for the Michigan Department of Labor and Economic Growth.

Average weekly wages were up by about 15 percent from 2000 to 2006, Weaver said, compared to 13 percent for the entire state. From 2004 to 2006, average weekly wages grew by 6.8 percent locally, but 4.9 percent in the state.

"Growth rates in wages are slightly higher in the Grand Rapids metro area than in the state," Weaver said.

However, wages in Grand Rapids tend to lag compared to the state as a whole, he said. "They are somewhat lower in Grand Rapids than they are in Michigan," he said.

For example, in May 2005, the latest statistics available, the median, or midpoint, hourly wage for all occupations in Michigan was $15.46, compared to $14.58 in KentCounty. Average annual pay for a management job was $90,370 in Michigan, but $82,240 in KentCounty. And for a chief executive, the Michigan average was $138,120 and the KentCounty average was $121,920. For tool and die makers, the average annual wage was $52,430.

Paul Siciliano, associate professor of economics at GrandValleyStateUniversity, said it appears that the sinking proportion of manufacturing jobs and rising proportion of service jobs have not hampered local wage growth; nor has a national unemployment rate under 5 percent.

"We are growing at about the same rate in West Michigan as the rest of the country," Siciliano said. "Wages in general across the country are kind of stagnant. Wages over the long run track productivity closely, although recently they are lagging a little."

Business productivity rose about 2.2 percent in 2006, the Bureau of Labor Statistics estimates.

Yet total compensation costs are going up, and Siciliano points to fringe benefits, in particular health care. An employer covering higher prices for fringe benefits doesn't feel like a raise to an employee, though, he added.

"If you want to know what's shaping compensation, the value of fringe benefits is growing over time. From (an employee's) point of view, it might not look like they're getting compensation. From a firm's point of view, they are certainly paying more."

The Bureau of Labor Statistics reported in January that "increases in benefit costs accounted for one-third of the rise in compensation costs" in the fourth quarter alone.

The National Compensation Survey last year found that employers pay about two-thirds of the average annual premium toward an employee's family health benefits policy: $617 per month. For single coverage, the average employer premium was $266.50 per month, according to the survey. Workers kicked in an average $297 per month for family coverage and $76 per month for single coverage.

"Manufacturing jobs offered a pretty good salary to people with relatively low education," Siciliano said. "It's sort of a misnomer to believe that all service jobs are bad jobs. There are a lot of high-paying service jobs, but they require education."    

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