Academic journal article Monthly Labor Review

Compensation Trends into the 21st Century

Academic journal article Monthly Labor Review

Compensation Trends into the 21st Century

Article excerpt

Changing family characteristics and labor force trends suggest more flexible and more varied pay and benefit packages as the U.S. enters a new century

To help mark the Monthly Labor Review's 75th year, the editors asked both data users and data producers to speculate about programs and data needs in 2015, when the Review will mark its centennial. This article and the article beginning on page 46, deal with the Bureau's compensation programs.

Are recent changes in the ways employers compensate their employees prologue to a new compensation system in the 21st century? In the 1980's, we have seen the waxing and waning of two-tier wage and benefit systems, the surge of lump-sum payments made to employees in place of wage-rate increases, and the appearance of flexible employee benefit plans. Whether such changes will endure is still being debated.

The debate is well framed within the broader context of U.S. industrial relations in two May 1988 Monthly Labor Review articles. John Dunlop argues that "no fundamental change" occurred in the 1980's, while Audrey Freedman insists, "This change is for good."(1) No doubt, employer-employee relations will be a central force in determining the size and makeup of future employee compensation packages, but the shape of these packages also will be influenced by the changing needs of employees and their families.

This article reviews compensation trends and speculates on how compensation packages in the next century might respond to the changing characteristics of the U.S. work force and to the needs of workers and their employers. Will pay for time worked continue to make up the lion's share of total compensation costs? Will the relative importance of individual employee benefits (such as paid leave, insurance, pensions, legally required benefits) remain constant or change? Will flexible or discretionary forms of employee compensation become more prevalent?

The emergence of benefits

The way American workers are compensated for their labor underwent dramatic changes in the middle third of this century.(2) In the early 1930's, compensation of the Nation's workers was made up almost entirely of wages for time worked or pay for units of output. Benefits as we know them today were virtually nonexistent except for workers' compensation programs in several States. Workers had to seek ways to protect themselves and their families from the hazards of life and work-sickness, accident, unemployment, and old age.(3)

The turmoil of the Great Depression highlighted the vulnerability of workers and their families in coping with economic uncertainty. These conditions led to passage of the Social Security Act in 1935, providing workers with protection against loss of income from old age and temporary unemployment.(4) The protection--funded payroll taxes-became a widespread, legally required benefit beyond direct pay.

The Second World War brought inflationary pressures, stemming from intense competition among employers for scarce labor resources, and pent-up demand for very limited supplies of domestic goods. To deal with these pressures, the War Labor Board controlled increases in cash wages, while employers were encouraged to offer forms of compensation that were considered noninflationary." Thus, compensation practices began to shift from direct pay to "fringe" benefits such as paid holidays and vacations, insurance, and pensions.

Employee benefits became even more widespread in the postwar years. Such compensation items were incorporated in package settlements hammered out by labor and management. The growth of employee benefits also was spurred by 1948-49 court interpretations of the Wagner Act of 1935, which expanded the act's scope to benefits in addition to its traditional coverage of wages, hours, and working conditions.(5)

Post-World War II trends

The spread of employee benefits during the post-World War II years also was aided by tax incentives and group purchase discounts. …

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