Having read many of the recommended diaries here regarding the Excise Tax on health care plans, I realized that the one thing it seemed was missing from any of these diaries was an actual economic assessment of the data that has been presented. I am going to attempt to provide that assessment using widely verified and common statistics that will show that medical costs and wages have almost no correlation and why you shouldn't expect a raise if the Senate Bill's tax plan is adopted.
First, I am going to start with this article from Ezra Klein, who states that:
The correlation between the two data sets is (0.8), which is incredibly high for this sort of thing. To give you an idea, I also ran the correlation between GDP growth and median wages over the period: It was (0.7), which is to say that there was a weaker connection between economic growth and median wages than between health-care costs and median wages.
Ezra is cherry picking both his dates and stats here. For those not following the link to the article, Ezra is comparing the correlation of health care costs to wage growth since 1990 to the correlation of wage growth to GDP growth over the same period. The data/date selection is important here, as he appears to be skipping the main counter-argument, that wage growth is tied more closely to supply-demand of labor than to GDP growth. The dates are also cherry picked here, as using 1990 as a starting point let's Ezra skip over the high inflation 70's and 80's entirely and also skip the major employment dislocations that those eras brought us.
I also decided to run some correlations using the much more reliable CPI-Medical Care (percent change from year ago) and the Census Median Household Income (percent change from a year ago) versus the correlation between the Census Median Household Income (percent change from a year ago) and the Unemployment Rate (percent change from a year ago). What we get is quite and amazing divergence from Mr. Klein's assessment of the situation:
The correlation between CPI-Medical Care and Median Income over the 1975-2008 period was -.151 and over the 1990-2008 period it was a +.008 (extremely weak correlations).
The correlation between the Unemployment Rate and Median Income over the 1975-2008 period was -.722 and over the 1990-2008 period it was -.792 (a very strong correlation).
Let's review this again. When we use readily available and widely used economic data we get almost no correlation between medical inflation and wages, but an extremely strong correlation between unemployment and inflation. I would love to see Mr. Klein's methodology and data in detail, but I am going to guess that in his zealousness to defend the excise tax both his data and methodologies would be lacking (especially since his use of GDP instead of unemployment already highlights this bias).
The problem we have is so intuitive that it shouldn't even have to be argued; the supply-demand dynamic of labor is the determining factor behind real income increases and that medical costs (which form the basis for health insurance costs) have little impact on incomes.
So, for those of you hoping to get a raise soon, your best bet is to pray for the unemployment rate to decline instead of a tax increase on your medical insurance.