When Government Dictates the Wages-Benefits Trade-off, Workers Lose

by Christina Sandefur
December 31, 2018

With U.S. unemployment at its lowest in decades, there’s been a fair amount of pessimism about wage stagnation. If our economy is doing so well, why aren’t people making more money? One reason for slow wage growth might be that American workers are receiving a growing share of compensation in the form of benefits rather than wages.

According to the New York Times, the average worker receives 32 percent of total compensation in the form of benefits, such as insurance, retirement plans, and paid leave. And companies are getting creative: The fast-food company Chick-fil-A is awarding millions of dollars in scholarships to its corporate and franchise employees. Disney will pay full tuition for workers who want to earn a college degree, finish a high school diploma, or even learn a new skill. Information technology company Cisco is reimbursing employees for pregnancy-fostering services and genetic testing. Walmart will pay to assist employees who want to adopt a child.

Some workers may relish this change, preferring to exchange wages for higher benefits. Others may prefer more cash, so that they can spend or save as they wish. It’s all a matter of individual preference.

But when government replaces individuals as the decisionmaker, its policies often harm the very people they were intended to help. For example, paid leave for new mothers can actually exacerbate gender inequality. As the Cato Institute’s Vanessa Brown Calder notes, “Being passed over for a job, involuntarily mommy-tracked, or having wages slashed to pay for prospective benefits can have impacts that last a professional lifetime.”

The same goes for mandatory minimum wages, which can put employees out of a job and employers out of business. They also increase the cost of living by making goods and services more expensive for customers. And they can harm taxpayers by forcing them to bear a greater financial burden or accept fewer or lower-quality government services for their tax dollars.

Allowing government to dictate decisions about pay, benefits, and the proper balance of the two will often produce unintended consequences. But when individuals are left free to make these choices for themselves, the outcomes are more likely to match their unique preferences.

For example, while some are calling for government solutions to the traditional workplace’s so-called gender pay gap (which isn’t actually what you think it is), “gig” economy workers are increasingly female and overwhelmingly believe they can get equal pay for equal work. Both males and females are able to find flexibility and opportunities in the sharing economy that wouldn’t otherwise have been available to them.

Bureaucrats itching to “do something” about wages and benefits should ditch top-down mandates and instead focus on eliminating overreaching occupational licensing laws and making it easier for people to pursue the job of their choice. Policymakers could also create a system of personal leave accounts. Just as people save for retirement and education expenses, they could save for time that they can’t work, by putting pre-tax wages into accounts that could be used to pay for their leave time when it’s needed. These solutions empower individuals to make their own choices and avoid the problematic one-size-fits-all approach of mandatory government wages and benefit programs.

No one, least of all bureaucrats in our nation’s or state capitols, knows what is right for each of the millions of working Americans. Remember: When government mandates a wage increase, jobs suffer. When government mandates a benefit increase, wages suffer. Shouldn’t workers be free to choose an employment arrangement that best suits their own needs?

Christina Sandefur is the Executive Vice President at the Goldwater Institute.