Human Capital & Careers

Health Benefits and the ‘Jobless Recovery’

A missing piece of the puzzle of why job creation has lagged despite an upturn in profits could be the rising cost of medical care.
Ed ZwirnAugust 20, 2004

An article in yesterday’s New York Times seems likely to provide fodder for the debate over the so-called “jobless recovery” being experienced by the U.S. economy.

Despite nearly three years of uninterrupted economic growth, the economy has been adding a relatively small number of jobs each month. One “significant factor” causing the employment slump is the increasing cost of employee health insurance, according to the article.

The Times cited government data, industry surveys, and interviews with large and small employees in reporting “that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation’s employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies.”

Health-benefit costs are draining corporate assets more than even climbing energy costs, according to the article. The cost of health benefits in the second quarter rose at a 12-month rate of 8.1 percent. That’s more than triple the inflation rate and the rate of wage and salary increases, according to the newspaper.

“Health care is a major reason why employment growth has been so sluggish,” the article quoted Sung Won Sohn, the chief economist at Wells Fargo, as saying.

Allan Gilmour, the vice chairman of Ford Motor and a former CFO of the company, told the newspaper, it would to be hard to find a direct link between higher health care expenses and the lag in hiring, since employment decisions were driven by many factors.

“Health is a larger and larger part of our compensation package,” Gilmour was quoted as saying. “It is hard to know what we are doing or not doing because of this. But on a macro level there’s no question about it: this pressure comes to bear on everything we do.”