Measuring the Cost and Incidence of Employee Benefits
Norwood, Janet L., Monthly Labor Review
Demographic, social, and economic changes and employer cost-cutting efforts are combining to produce new, more flexible, more integrated benefits -which are more difficult to measure
Employee compensation has changed dramatically in recent years. As inflation has decelerated and industry has undergone restructuring, wage and salary increases have moderated. Increases in the employer cost of benefits also have slowed, but discussion about the range of benefits offered to workers has picked up significantly.'
The generation of workers born after World War 11 now accounts for a substantial proportion of the Labor force. Like their working parents, these workers are concerned about rising health care costs, job security, and future retirement income. In addition, more women than ever before in our history have entered the Labor force, many of them mothers of small children. This development has focused national attention on the interaction of work and the family. The combination of these demographic, social, and economic changes has resulted in a reexaminination of employee compensation, which now encompasses a number of emerging benefits.
As a result, the measurement of total compensation to workers has become not only more important but also more difficult. This article discusses some of the problems in measuring the incidence and employer costs of benefits which are becoming more flexible, increasingly more integrated, and innovative at a time when employer costcutting initiatives are gaining momentum.
Two BLS surveys
The Bureau of Labor Statistics measures benefits by (1) obtaining the cost to the employer of providing them and (2) describing the details of the plans.2
BLS measures employer costs through the Employment Cost Index, a quarterly survey of employers that tracks the change in the cost to employers of compensation for their employees. The Employment Cost Index is a baseweighted index which shows the change in the cost to the employer of a market basket of occupations from a base period to the present. In constructing the index, BLS asks its data collectors to gather information on wages and salaries and on about two dozen types of employee benefits. In October 1987, BLS began publishing-in addition to indexes and percent changes-the dollar cost per hour worked of each of these elements of compensation.' BLS measures employee benefits provisions through an annual Employee Benefits Survey, which provides such details as the prevalence of various health insurance deductibles, pension benefit formulas, and vacation accrual rates.
Greater benefit plan flexibility
The needs of a changing work force have led to greater interest in flexible benefits plans, which permit workers to choose among different types of benefits and benefits options, depending on their family situation. For example, in a two-earner family, both members may not need health insurance, because one is covered by the other's policy. Instead, the worker may select employer-sponsored child care, additional life insurance, or a taxdeferred savings plan.
While such options accommodate the worker, they make benefit plans more complex for the employer to administer and complicate data collection. Instead of gathering information on a single health insurance plan covering all workers, it may be necessary to collect data for several plans, as well as for options within plans. Surveys like the Employment Cost Index and the Employee Benefits Survey, which measure employer cost or plan details for all the plans that cover workers, require more comprehensive information from the employer than would otherwise be the case.
Employee choice in selecting different types or levels of coverage sharpens the contrast between measures of worker participation and eligibility. In a flexible benefits plan, most employees will be eligible for all plans and options, but no one employee will be able to participate in all of them. …