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5 Standard Employee Benefits Compensation for work consists of wages and salaries as well as non- wage benefits such as health, life, and disability insurance; sick leave; vaca- tions; and holidays. Deferred income- pensions, investment plans, stock options are also considered nonwage benefits. These benefits form a stan- dard part of total compensation and have increased in both value and impor- tance for some time. They make an important contribution to the well- being of employees and their families. Some benefits are required by federal or state laws; others are offered voluntarily or result from collective bar- gaining. This chapter reviews the evolution of the most common nonwage benefits; examines why they are offered; and discusses to what extent benefits vary by industry, occupation, wage level, and employment status. Three types of surveys provide information about employee benefits: (1) surveys of employers, which have samples that are neither national nor random (e.g., U.S. Chamber of Commerce, Wyatt Company); (2) employee surveys that are national but are largely or entirely confined to workers in medium- and large-sized firms (e.g., Bureau of Labor Statistics); and (3) specialized surveys that contain little employer information (e.g., Survey of Income and Program Participation). The data obtained are not comparable and do not provide authoritative information on the scope and availability of many types of benefits. These surveys do, however, give a good picture of the programs overall and a profile of participants. EVOLUTION OF NONWAGE BENEFITS Nonwage benefits evolved with the growth of the industrial economy. In the last quarter of the nineteenth century, large, profitable firms began of 87

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88 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE fering pension plans and other benefits, such as paid vacation leave. The American Express Company, for example, established a pension plan in 1875. The concept of welfare capitalism gained a foothold with many large companies in need of skilled workers or hoping to reduce the appeal of labor unions (Brandes, 1976~. Managers crafted benefits in growing industries such as steel, electrical products, and automobiles hoping to achieve not only greater productivity, but also such diverse goals as ad- herence to religious values and literacy (Kamerman and Kahn, 1987; Kan- ter, 1977b; Schatz, 19831. Benefits offered within a company were not uniform for all employees. Men and women were provided different ben- efits, reflecting then-current expectations: men would work until old age; women would work until they married and began to raise a family. Thus men were offered pensions and paid vacations; women were offered poetry and cooking classes (Schatz, 1983~. Benefits were generally offered only by large firms seeking workers with special skills. A' one great majority of working people received few benefits, whether vacations, health care or sick pay. Long hours, hazardous working conditions, and the absence of job security led the emerging labor unions to bargain for better working conditions and support legislative protection for working people. The first state workers compensation laws were en- acted in 1911 in response to these pressures. The laws established mini- mum industrial safety standards and provided compensation in case of job-related death or disability (Berkowitz, 1979~. These early laws did not apply to agriculture, which at that time employed the majority of workers, particularly black workers. During this period, efforts to legislate an 8-hour workday failed. But exposes of brutal industrial and commercial working conditions at least strengthened the movement for reform for women and children. By 1912, 34 states had enacted protective laws limiting women's hours, prohibit- ing many types of child labor, and protecting maternal roles. Half a century later, 40 states had laws regulating women's employment (Kamerman et al., 1983; Ratner, 1986; Frank and Lipner, 1988; Williams, 1985~. It was not until the 1964 Civil Rights Act made these earlier state laws protecting women discriminatory that they were superseded by federal equal em- ployment opportunity laws. The Great Depression of the 1930s eroded earlier gains in benefits. Em- ployees were grateful for work and made few demands for benefits. The stage was set for government involvement, beginning with the enactment of Social Security legislation in 1935. A cornerstone of the New Deal, it provided for pension benefits, although its coverage in the early years was far from universal. More important at the time were the immediate cash benefits paid to older workers. Further improvement in benefits occurred during World War II, when

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STANDARD EMPLOYEE BENEFITS 89 labor was in short supply and workers had more leverage with employers. Wartime wage and price controls prohibited bargaining for increased wages, but these controls did not apply to nonwage benefits. Unions successfully negotiated health insurance and pensions. In the years following the war, substantial real wage gains flowed from the growing economy. By 1950, many unions had shifted their priorities somewhat from wages to shorter working hours, vacation leave, and improved health insurance. (See Em- ployee Benefit Research Institute, 1987; Friedman and Gray, 1989; Saltford and Heck, 1989.) By 1970 a standard benefit package was commonly offered by many medium- and large-sized firms. It consisted of Social Security benefits plus sick leave, a company-supported pension benefit, health insurance, and paid vacations. Although the types of benefits included tended to be similar, the scope and value of offerings varied from firm to firm. In small firms Social Security was frequently the only benefit provided. As shown in Table 5-1, the aggregate value of benefits grew from a little more than 1 percent of total compensation in 1929 to 10.4 percent in 1969 and 16.2 percent in 1988 (Council of Economic Advisers, 19891. Including benefits such as pay for time not worked (e.g., vacations), 1990 nonwage benefits in private industry accounted for almost 28 percent of total com- pensation. Growth in all types of benefits did not, however, proceed at an even pace. The long period of expansion of voluntary benefits ended in the 1970s and was followed by a decline in the 1980s. Only increases in benefits required by federal and state governments caused aggregate ben- efits to increase since 1980. Also, payment for time not worked has de TABLE 5-1 Aggregate Value of Employee Nonwage Benefits, 1929-1988 Year Current Dollars Percentage of Total (billions) Compensation 1929 1939 1949 1959 1969 1979 1988 $ 0.7 1.3 2.2 4.6 7.3 21.4 60.1 239.5 464.3 5.1 7.6 10.4 16.1 16.2 NOTE: Consists mainly of employer contributions tO SO- cial insurance and to private pension, health, and welfare funds. SOURCE: Council of Economic Advisers (1989:Table B- 24).

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9o WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE clined. Chamber of Commerce data analyzed by Woodbury (1989' show that payment for days not worked increased during the 1970s and then tapered off. By the mid-1980s it had returned to the approximate level of the 1960s. The forces causing growth in benefits are complex and do not affect all segments of the economy equally. The factors influencing the provision of voluntary benefits include: tax policy, changes in real wages, employers, efforts to reduce labor turnover and improve productivity, demographic changes, and unionization. And expert views differ regarding the relative contribution of the different factors. But Woodbury (1989) offers convinc- ing evidence that the two most important factors are tax policy and changes in real incomes. The implications of this finding are discussed below. Federal and state tax policy has explicitly encouraged the growth of many employer-paid benefits by excluding them from taxable employee income while permitting businesses to treat them as a normal business ex- pense. This approach assumes that benefits such as health and life insur- ance, pensions, etc., are in the public interest and thus merit subsidy through tax expenditures. The exemptions have greater value for the affluent, who are in higher tax brackets. For all income groups the value of exemptions decreases when tax rates decline, as they did in the 1980s. Nonetheless, these exemptions remain very popular. Economists have examined some of the unintended consequences of these exemptions. We have already noted the differential effect by income level. For those with incomes so low that they are not subject to taxes, the exemptions have no value. It has also been noted that government revenues shrink substantially when over one-fourth of employee compensation is not taxed. Munnell (1989) estimates that this loss will amount to $171 billion in 1993. Obviously this means that less money will be available for whatever direct expenditures governments want to make. Some economists also believe that this policy has resulted in excessive resources being allocated to subsidized benefits, for example, health insurance (Feldstein, 1977; Feldstein and Friedman, 19771. BENEFITS ESTABLISHED BY LAW Two types of employment-based benefits are established by law: tax- supported benefits managed by public agencies and mandated benefits pri- vately purchased by the employer. Employer contributions for both of these are now 9 percent of total compensation, up from approximately 3.6 percent in 1960 (Andrews, 1988; Bureau of Labor Statistics, 1990a). Federal Programs The large federal role in nonwage benefits was established by the Social Security Act of 1935 and its subsequent expansion to include disability and

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STANDARD EMPLOYEE BENEFITS 91 health insurance. This program is funded through a payroll tax on employ- ers, employees, and the self-employed, which is collected and disbursed by federal agencies. Although the federal government also sets standards for unemployment insurance, states may develop their own programs. Participation in the social insurance programs has expanded steadily since the 1930s and now includes 95 percent of all U.S. workers in private indus- try (profit and nonprofit), military personnel, federal employees hired since 1984, and about 10 percent of federal workers hired earlier. Some state employees are exempted and covered instead under state programs. Social Security and Medicare provide the foundation of economic support and health insurance coverage for elderly and disabled people, although neither program is intended to cover all needs. The principal benefits are provided by the Old Age, Survivors, Disabil- ity, and Health Insurance (OASDI) program. Retirement benefits account for about 50 percent of Social Security payments. In 1986 approximately 38 million people received OASDI benefits totaling $272 billion (Bureau of the Census, 1989f). In 1990, covered workers and their employers each paid a tax of 7.65 percent on earnings up to $50,400 per individual. The earnings base (income subject to taxation) is indexed to increase with aver- age earnings nationwide. Medicare Part A (or Hospital Insurance-HI) insures hospital inpatient services and certain follow-up care for people over age 65, those who have been disabled for more than 24 months, and those who suffer chronic kid- ney disease. In 1989, about 30 million people over age 65 and 3 million disabled people were enrolled in Medicare Part A; expenditures were $60.8 billion (Federal Hospital Insurance Trust Fund, 1990~. Individuals eligible for Medicare Part A may elect to enroll in Part B or Supplementary Medical Insurance (SMI), which pays for physician services, outpatient hos- pital services, and other medical expenses. Premiums paid by enrolled individuals contribute 27.7 percent of all SMI income, while general rev- enue contributions account for 69.6 percent of income (Federal Supplemen- tary Medical Insurance Trust Fund, 1990~. State Medicaid programs pay SMI premiums on behalf of eligible low-income, elderly, or disabled people. SMI expenditures in 1989 were $39.8 billion for benefits to the 32 million people covered by the program. State Programs All states have some form of workers' compensation providing benefits for those disabled by work-related injury or illness and for dependents of workers whose deaths resulted from such injury. These programs are gener- ally administered by commissions or by units within state labor depart- ments. They differ greatly in extent of coverage, level of benefits, and the

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92 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE insurance method used to underwrite risks. Underwriting may be through commercial insurance, publicly operated state insurance funds, or self-in- surance, primarily by large employers (Nelson, 1989~. About 87 percent of all wage and salary workers were covered in 1986. Employer costs were approximately $34 billion, or slightly more than 1 percent of total payroll (Nelson, 1989~. The cost to employers varies sig- nificantly depending on industry hazards and the proportion of insured workers in high-risk jobs. Typical benefits cover medical costs and provide two-thirds of gross earnings, up to the average weekly wages in the state. The benefits are tax-free. The tax exemption is of greater value to higher- income workers, although wage replacement ratios are less favorable for workers whose wages exceed the state average and are therefore limited to less than two-thirds of earnings. Many experts recommend reforms in workers' compensation because of escalating costs and inequities between households within and among states (deVol, 1985~. Over the last decade more than 1,000 amendments to state workers' compensation laws were enacted in response to problems or perceived inequities (Business Insur- ance, 1989~. Unemployment compensation is another major state program; it provides income to individuals unable to find work. It covers about 97 percent of wage earners. Under the Federal Unemployment Tax Act of 1939 (as amend- ed), employers are taxed 6.2 percent on wages of up to $7,000 per worker, but are allowed substantial credit for payroll contributions paid under state unemployment insurance laws. Thus it is primarily a state program with a small federal component for administrative costs (Hamermesh, 1989~. Employer taxes in 1987 totaled $18 billion, about 2.5 percent of total wages. Slightly over 7 million beneficiaries received $14 billion in benefits. Mean weekly benefits were $140, ranging from an average low of $98 in Tennes- see to $174 in Massachusetts (Bureau of the Census, 1989f). Short-term disability programs (discussed below) are legally required in only five states: California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico. In each of the plans, employees must contribute to the cost of coverage. Employers in California, New Jersey, New York, and Puerto Rico can purchase coverage from either the state plan or any private plan that meets state requirements, including self-insurance. California and Rhode Island do not require employers to contribute. Hawaii provides only for self-insurance, and Rhode Island has a state plan, with private plans allowed only as a supplement. A summary of the laws is shown in Table 5-2. Although costs for all states are not available, data from New York provide one example. In 1986 approximately $566 million was paid in benefits: $511 million to compensate for lost wages and $55 million for medical care (State of New York Workers' Compensation Board, 19861. These costs have risen steadily over the last 20 years due to rising wages,

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96 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE increases in statutory benefit rates, extension of the maximum duration of benefits, expansion to additional groups of workers, and repeal of statutory exclusions such as pregnancy-related disability and motor vehicle accidents. VOLUNTARY BENEFITS Voluntary benefits are those not required by law that are initiated by employers or provided as the result of collective bargaining. Including the value of pay for time not worked, total benefits account for almost 28 percent of compensation, of which voluntary benefits make up almost 19 percent (Table 5-31. Some voluntary benefits are subject to government regulation, such as the Employee Retirement Income Security Act (ERISA) and the Retirement Equity Act (REA). The seven most common are: pen- sion plans, health insurance, life insurance, long-term disability insurance, vacations, holidays, and sick leave. Others less frequently provided include: subsidized education, discounts on goods and services, job-site cafeterias, parking, and special clothing. TABLE 5-3 Employer Costs for Employee Compensation in Private Industry, 1990 Compensation per Hour Worked % of Total Compensation Wages and salaries Benefits Legally requireda Paid leaveb InsuranceC Pensions and savings Supplemental paye Other benefits f g $10.84 4.13 1.35 1.03 0.92 0.45 0.37 72.4 g 27.6 9.0 6.9 6.1 3.0 2.5 Total $14.96 100.0 asocial security, railroad retirement and supplemental retirement, railroad unemployment insurance, federal and state unemployment in- surance, workers' compensation, and other benefits required by law, such as state temporary disability insurance. bPaid vacation, holidays, sick leave, and other leave. CLife, health, sickness, and accident insurance. dPension and other retirement plans and savings and thrift plans. ePremium pay for overtime and work on weekends and holidays, shift differentials, nonproduction bonuses, and lump-sum payments. fIncludes severance pay and supplemental unemployment insurance. "Cost per hour worked is $0.01 or less. SOURCE: Bureau of Labor Statistics ( 1 990a).

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STANDARD EMPLOYEE BENEFITS 97 Table 5-4 shows the range of benefits offered in medium- and large-sized firms and the percentage of full-time employees estimated to be eligible for each type of benefit; also shown are differences in rates of participation between employees in private industry and those in state and local govern- ment. The most common types of benefits are described below. TABLE 5-4 Employee Participation in Employee Benefit Programs in Private Industry and Government, 1987 and 1989 (percentage) Benefit Private Industry, State and Local 1989 Governments, 1987a Paid time off Holidays 97 81 Vacations 97 72 Personal leave 22 38 Lunch period 10 17 Rest time 71 58 Funeral leave 84 56 Jury duty leave 90 98 Military leave 53 80 Sick leave 68 97 Insurance Sickness and accident 43 14 Long-term disability 45 31 Health 92 94 Life 94 85 Retirement Defined benefit pension Defined contributions 48 63 93 9 NOTE: Participants are full-time workers in medium- and large-sized firms covered by a paid time-off, insurance, retirement, or capital accu- mulation plan. Workers eligible for paid or unpaid maternity and pater- nity leave are also covered. Employees subject to a minimum service requirement before they are eligible for benefits coverage are counted as participants even if they have not met the requirement at the time of the survey. If employees are required to pay part of the cost of a benefit, only those who elect the coverage and pay their share are counted as participants. Benefits for which the employee must pay the full premium are outside the scope of the survey. Only current employees are counted as participants; retirees are excluded. aMost recent year for which data are available. bPlans were counted as retirement plans if employer contributions had to remain in the participant's account until retirement age, death, disability separation from service, age 59~/2, or hardship. SOURCE: Bureau of Labor Statistics (199Oa:Table 1; 1988:Table 1).

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STANDARD EMPLOYEE BENEFITS 103 workers in mining and construction, more than 100 workers in manufactur- ing, and more than 50 workers in some service industries) are taken from a 1985 survey by the Bureau of Labor Statistics. According to this survey, approximately 21 million workers in the 48 contiguous states were cov- ered. The data on employees in small businesses having fewer than 100 employees are taken from a 1985 survey of the National Federation of Independent Businesses. They show substantially lower coverage in smaller firms. Similar findings have emerged from other surveys, such as those by Lewin/ICF, Inc. (1988), the U.S. Chamber of Commerce (1988), and the Wyatt Company (1988~. One exception is the insurance industry, in which smaller firms provide more benefits (U.S. Chamber of Commerce, 19881. There are also substantial differences in benefits by industry. The textile and apparel industry, for instance, spends 27 percent less than average on benefits as a proportion of the payroll, while the primary metals industry spends about 28 percent more than average (U.S. Chamber of Commerce, 1988~. As shown in Table 5-6, the hourly cost of benefits was $5.41 in goods-producing industries but only $3.63 in service industries. Among service industries, the transportation industry spent the most on benefits ($6.74 per hour), while retail trade spent the least ($1.90 per hour). The U.S. Chamber of Commerce study (1988) concludes that businesses more exposed to competition, whether domestic (retailers) or foreign (tex- tile and clothing manufacturers), tend to offer lower levels of benefits than those with more market power. The reason may be that firms in less com- petitive industries can more easily pass on the costs of benefits to customers through higher prices. There are important differences even among large firms: among the Fortune 500 in 1985, benefits were found to range be- tween 10.7 percent and 34.4 percent of total labor costs (Employee Benefit Research Institute, 1987~. Freeman and Medoff (1984) found that in the manufacturing sector, after controlling for size, occupation, industry, region, demographic characteris- tics of workers and wages, union firms on average spend 25 percent more on benefits than do nonunion firms. Their analysis of Quality of Employ- ment Survey data also shows that union members receive 8 percent more in benefits. They conclude that unionization has more effect on benefits than on wages. Low-wage workers are less likely to receive benefits than those with higher wages. In large measure this results from the concentration of low- wage workers in firms that, for the reasons noted above, provide fewer benefits. The greater relative value of tax-free benefits to higher-income workers is also likely to influence decisions about the emphasis placed on benefits rather than wages. Similarly, low-wage workers show less prefer- ence for benefits in favor of wages. Woodbury (1989) found the differen

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STANDARD EMPLOYEE BENEFITS 105 tial between occupations within the same industry group to be much small- er than the variations between different industries and sectors of the economy. Part-time employees are at a disadvantage with regard to benefits, as several surveys document (Kahne, 1988; Kamerman and Kahn, 1987; Levi- tan and Conway, 1988; Wyatt Company, 1988~. This is probably related to the fact that they usually receive lower wages than full-time workers in 1987 only $4.42 per hour compared with $7.43 (Kahne, 1988~. One survey found that only 15 percent of firms provided the same benefits to full-time and part-time workers. The industries most likely to provide equal benefits are those that employ a large proportion of part-time workers, such as hos- pitals, banks, insurance companies, and publishers. Among the benefits part-time workers are most likely to receive are health insurance and paid vacations (U.S. Chamber of Commerce, 1988~. Because health care and paid time off are particularly important to families, we examine their distri- bution in more detail. Health Insurance Coverage Employer-paid health insurance is a very important benefit, not only for employees, but also for their families. The Current Population Survey esti- mates that 61 percent (40 million) of all children under the age of 18 are covered by employment-based insurance (Moyer, 1989~. In addition, 13.9 million employees receive employer group health insurance as dependents: some of these are young people living at home, but 70 percent are women, most often ages 35 to 54, married and working part time (Swartz, 1989~. Cost, Availability, and Participation AS mentioned, rapidly increasing health insurance costs are a growing problem for employers. They have responded with unprecedented cost con- tainment efforts and by shifting more of the costs to employees. In 1980, one survey found that 72 percent of employees had coverage fully paid by employers; by 1986, only 54 percent of employees had fully paid coverage (Wyatt Company, 1988~. Comparable figures for the coverage of family members showed a decrease from 51 to 35 percent. Since 1980, 40 percent of the companies with basic medical plans and 60 percent of those with comprehensive plans had raised deductibles for workers by $200 or more. By 1988, one-quarter of the companies with comprehensive plans also had increased maximum out-of-pocket payments for family members to $3,000 or more (Wyatt Company, 19884. A survey of 178 plans, covering nearly 200,000 members of the Service Employees International Union (1989), found that employees' contributions to premiums for family plans

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106 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE had risen by more than 70 percent over 2 years, double the 35 percent increase for employer contributions over the same period. As mentioned above, increased per capita costs of insurance have called attention to the cross-subsidy that occurs from large to small businesses when employed spouses are insured as dependents rather than covered di- rectly as employees. Large employers, such as Chrysler Corporation and American Airlines, argue that they are carrying too much of the burden for the health insurance coverage of workers' employed dependents (Swartz, 1989). As is true of benefits generally, the availability of health insurance varies greatly for different groups of workers. In medium- and large-sized firms, 92 percent of employees have access to some coverage, as do 94 percent of employees of state and local governments (see Table 5-4~. There are no substantial differences in access to coverage between blue-collar and white- collar workers or, in the public sector, between teachers, police officers, and firefighters (Bureau of Labor Statistics, 1989a). In contrast, as seen in Table 5-5, small firms provide health insurance for only about 75 percent of their full-time employees. Estimates of coverage for all employees in small firms, including those working part time, range from 21 to 37 percent (Chollet, 1987; Swain, 1988; U.S. Chamber of Commerce, 1988~. Small businesses are less likely to provide health insurance than are larger ones. Among the reasons suggested are the marginal financial posi- tion of many small firms and the fact that purchasing health insurance is considerably more expensive for small firms than for large ones according to Swain (1988), as much as 40 percent higher. Insurance costs can be prohibitive if there are one or more high-risk individuals in the group or if the firm is engaged in what insurance carriers judge are hazardous activi- ties. Firms with high employee turnover or in fields with a large proportion of failures may be unable to obtain coverage altogether. Small firms tend to employ a larger number of part-time and seasonal workers than do large firms. High fixed costs for plan administration add further to premium rates. Small businesses that do offer coverage tend to be those that are profitable and growing and that pay higher wages (Lewin/ICF, Inc., 1988~. Table 5-7 shows that many benefits require substantial employee contri- butions. In medium- and large-sized firms, 48 percent of employees partici- pate in health insurance plans that are wholly employer financed and 44 percent participate in plans only partly financed by employers. And 31 percent participate in wholly employer-financed family plans and 60 per- cent in partly employer-financed family plans. Optional coverage, copayments, and deductibles are a standard part of insurance plans. They offer workers choice but pose problems for low-wage workers. In addition to workers for whom no employer-sponsored health plans are available, there are those who do not take advantage of the insurance that is

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STANDARD EMPLOYEE BENEFITS 107 TABLE 5-7 Participation in Employee Benefit Programs by White-Collar and Production Employees, 1989 (percentage) All Professional and Technicaland Benefit Employees Administrative Clerical Production Paid time off Holidays 97 97 96 97 Vacations 97 98 99 95 Personal leave 22 28 30 14 Lunch period 10 4 4 16 Rest time 71 57 69 80 Funeral leave 84 87 86 80 Jury duty leave 90 95 92 87 Military leave 53 61 57 45 Sick leave 68 93 87 44 Insurance Sickness and accident 43 29 29 58 Wholly employer-financed 36 22 22 51 Partly employer-financed 7 7 7 7 Long-term disability 45 65 57 27 Wholly employer-financed 35 50 43 23 Partly employer-financed 9 15 14 4 Health 92 93 91 93 Employee coverage Wholly employer-financed 48 45 41 54 Partly employer-financed 44 48 50 39 Family coverage Wholly employer-financed 31 28 25 37 Partly employer-financed 60 64 66 54 Life 94 95 94 93 Wholly employer-financed 82 82 81 83 Partly employer-financed 12 13 14 11 Retirement All retirements 81 85 81 80 Defined benefit pension 63 64 63 63 Wholly employer-financed 60 61 61 60 Partly employer-financed 3 3 2 3 Defined contributions 48 59 52 40 Uses of funds RetirementC 36 43 39 31 Wholly employer-financedd 14 15 14 12 Partly employer-financed 22 28 24 18 Capital accumulations 14 18 14 11 Wholly employer-financedd 2 1 1 3 Partly employer-financed 12 17 13 8 NOTES: Because of rounding, sums of individual items may not equal totals. Participants are full-time workers in medium- and large-sized firms covered by a paid time off, insurance, retirement, or capital accumulation plan. Employees subject to a minimum table continues

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108 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE offered. Two recent studies provide some information about those who are offered insurance but do not participate. A 1987 Service Employees Inter- national Union survey of low-wage union members, mainly janitors, clerical workers, nurses' aides, and food service workers at 27 sites in 11 states found that, although almost two-thirds of those surveyed were offered in- surance, over half of them, most full-time workers, chose not to be en- rolled. Roughly half of insured workers with children had no family coverage. The main reasons given for not participating were the high payments required (averaging $130 a month), high deductibles for family coverage (averaging $500), and no coverage for physicians' services. Re- spondents indicated they would be willing to pay about $24 a month or 5 percent of their take-home pay for coverage. The second study (Spalter-Roth et al., 1989) confirmed that low-wage workers and workers in low-wage industries are less likely to be covered. More surprisingly, it was discovered that over 50 percent of low-wage work- ers and 30 percent of those with moderate wages, especially those who did not belong to unions, did not know whether they had health insurance. Possible explanations are that healthy young workers tend to have a cavalier attitude toward health insurance coverage (Chollet, 1988) and that some workers are covered by their spouses' insurance. It may also be that em- ployers do not publicize the availability of coverage to keep costs down (Spalter-Roth et al., 19891. TABLE 5-7 Continued service requirement before they are eligible for a benefit are counted as participants even if they have not met the requirement at the time of the survey. If employees are required to pay part of the cost of a benefit, only those who elect the coverage and pay their share are counted as participants. Benefits for which the employee must pay the full premium are outside the scope of the survey. Medium- and large-sized firms are generally establishments with at least 100 to 250 em- ployees, depending on industry. aIncludes defined benefit pension plans and defined contribution retirement plans. The total is less than the sum of the individual items because many employees participate in both types of plans. bThe total is less than the sum of the individual items because some employees participated in both retirement and capital accumulation plans and in more than one type of plan. CPlans were counted as retirement plans if employer contributions had to remain in the participant's account until retirement age, death, disability, separation from service, age 59~/:, or hardship. dEmployees participating in two or more plans were counted as participants in wholly employer-financed plans only if all plans were noncontributory. eIncludes plans in which employer contributions may be withdrawn from participant's ac- count prior to retirement age, death, disability, separation from service, age 59~/:, or hardship. SOURCE: Bureau of Labor Statistics (1990a:Table 1).

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STANDARD EMPLOYEE BENEFITS 109 In summary, although health insurance is a widely available benefit, its coverage is nonetheless incomplete and is least likely to extend to workers in areas of high job growth, namely among small firms in the retail sales and service sectors. Many workers and families without health insurance have low incomes and include a large number of single-adult and minority families. The Uninsured There is growing concern about the millions of Americans without any health insurance. As noted earlier, in 1987 an estimated 13 percent (31 million) had no health insurance (Moyer, 19891. The Congressional Re- search Service (1988) concluded that the increase in the number of uninsured has been caused largely by changes in dependent coverage. It found that fewer people obtained insurance through another family member's employ- ment, for two reasons. First, employers provided less family coverage. Second, children under age 18, most likely to be eligible for coverage, declined as a percentage of the population, and older children are often not eligible for coverage under their parents? policies. The general belief that the increase in the number of uninsured has been caused mainly by the shift in employment from the manufacturing to the service sector appears to be mistaken. According to a preliminary analysis of the 1988 Current Population Sur- vey, 80 percent of the uninsured are employed or are dependents of em- ployed people. As shown in Table 5-8, half of these families have a full- time, year-round worker. They remain uninsured in part because so many small firms do not offer health insurance: 39 percent of the employed uninsured work in firms of less than 25 employees. As many as 25 percent live in poverty and presumably cannot afford individual insurance: 65 percent are white, 21 percent are Hispanic, and 16 percent are black (Moyer, 1989~. Additional information on the employment status of the uninsured and their dependents comes from the 1987 Current Population Survey (Swartz, 1989; Chollet, 19881. Of the 16.6 million employed uninsured (including 1.8 million people who are self-employed), slightly more than 50 percent were in retail and service trades, and 43 percent were in administrative, sales, and service occupations. Almost two-thirds of the employed uninsured earned less than $5 an hour. Nonetheless, about half of the uninsured fami- lies with at least one employed person live in families with an income above 185 percent of the poverty level (Swartz, 19891. We assume that some portion of higher-income workers who do not have health insurance, especially those in large firms, choose not to participate. Almost half of the 10.5 million self-employed workers also are not covered; the other half have individual coverage.

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110 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE TABLE 5-8 Characteristics of Employed Uninsured People and Their Dependents, 1987 Uninsured in Employed Families Percentage of (millions) Percentage All Uninsured Work experience of employed person Total 25.1 100.0 80.5 Poor 6.1 24.4 19.6 Above 185 percent of poverty 11.4 45.5 36.7 Full-time, all year 13.0 51.9 41.8 Part-time, all yeara 1.9 7.6 6.1 Full-time, part year 7.6 30.2 24.3 Part-time, part yeara 2.6 10.3 8.3 Size of employer Under 25 employees 9.8 39.0 31.4 25 or more employeesb 15.3 61.0 49.1 Average hourly wage Less than $5.00 12.5 49.9 40.8 $5.00-$9.99 8.8 35.2 28.4 $10.00-$14.99 2.3 9.3 7.5 $15.00 or more 1.4 5.6 4.5 $5.00 per hour or more 12.5 50.1 40.3 Poor 1.4 5.8 4.6 Above 185 percent of poverty 7.5 29.9 24.1 aPart-time workers must work 18 hours or more per week. bThis category includes all nonrespondents to the question of employer size. SOURCE: Preliminary tabulations from the March 1988 Current Population Survey, 17 April 1989. Adapted from Moyer (1989:Table 5). Moyer (1989) estimates that 12 million children are not covered by health insurance. Many of them live in poor, single-parent families without a full-time worker, which nonetheless are not poor enough to qualify for Medicaid. Even in poor, two-parent families with a full-time worker, 43 percent of children are not insured (Chollet, 19881. In 1985 as many as 3.2 million children in families with a worker who had health insurance were not covered. The uninsured often face daunting financial barriers to obtaining health care or must rely on public providers (clinics, hospitals) having far too few resources. The 1986 Health Interview Survey found that the uninsured see a physician two-thirds as often as the insured and are more likely to rely on emergency room visits for routine care. There are other serious conse

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STANDARD EMPLOYEE BENEFITS 111 quences of the absence of universal coverage. Uncompensated care costs the nation's hospitals about $6 billion annually. The lion's share of this burden is borne by public facilities, because the uninsured are more likely to use public clinics and emergency rooms. Paid Time Off As we have seen, paid time off is a significant part of employer-provided benefits. Expansion of leave policies to include universal leave for care of infants and ill dependents is proposed by many as particularly important to working families. At present, leave policies in the United States vary con- siderably by size of firm, occupation, and industry. Apart from holidays and vacations, paid nonwork time is largely limited to sick leave and dis- ability leave. These are available to 68 percent of full-time employees in medium- and large-sized private firms and 97 percent of those in the public sector (Table 5-4), but far less so to workers in small firms (Table 5-5) (Alpert and Ozawa, 1986; Trzcinski, 1988a, 1989~. According to one sur- vey of small establishments, 52 percent did not provide paid sick leave, although they were somewhat more likely to provide paid vacations and may be more flexible about informal leaves (U.S. Small Business Admin- istration, 19871. There are major differences in the availability of sick leave between white-collar and blue-collar workers and among employees in different sectors of the economy (Table 5-7~. Among production workers, only 44 percent are allowed sick leave, whereas 93 percent of professional and administrative employees and 87 percent of technical and clerical employ- ees are. In state and local government, 97 percent of employees are allowed Q11rh 1P~V~. (Table. ~ 41 Among those who are entitled to sick leave, pri- vate-sector employees have more days available per year, especially as they achieve seniority. The average is 15 days after 1 year and 41 days after 25 years. The amount of leave varies for different groups of public- sector employees. Teachers average 12 days of sick leave per year, whereas police and firefighters average 18 days per year (Blostin et al., 1988; Wiatrow- ski, 1988). Paid time off is especially important to parents with children when the parents work full time. However, Woodbury's findings that overall pay for time not worked has stabilized at approximately the same level as in the 1960s (Woodbury, 1989) suggests that parents still have relatively little flexibility. Woodbury's findings are based on the U.S. Chamber of Com- merce time series, Employee Benefits. U.S. National Income and Product Accounts do not report payments for time not worked. Because time not worked includes use of sick leave as well as vacations and personal leave variations in one category may mask changes in another. ~ ~ _ ~ ~ _ ~ , ~\ ~ ~ '- - J 2

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112 WORK AND FAMILY: POLICIES FOR A CHANGING WORK FORCE CONCLUSIONS Nonwage benefits for workers have grown in importance since the late nineteenth century and now account for almost 28 percent of total compensation. Benefits established by law amount to 9 percent of worker costs, mainly for Social Security and Medicare at the federal level and unemployment and workers' compensation insurance at the state level. In addition, five states, having almost 25 percent of all employees, require employers to provide short-term disability programs. These benefits, taken as a whole, provide the core of social support programs that have contrib- uted to the reduction of poverty and increased independence among the elderly and have helped unemployed and disabled workers and their depen- dents. Other available benefits-including sick leave, health care insurance, and pensions are provided by employers, as a result of collective bargaining or voluntarily. The costs of almost all benefits are deductible as expenses to employers. With limited exceptions, the benefits are not taxed as income to employees either. This privileged tax treatment makes them an attractive alternative to wage increases, especially for employees in high tax brackets. Overall, the availability of voluntary benefits is very uneven. More are received by higher-income than by lower-income workers, by employees of medium- and large-sized rather than small firms, by white-collar rather than blue-collar workers, by unionized rather than nonunionized workers, and by those holding full-time rather than part-time jobs. Rapidly growing industries, particularly in the service and retail sectors in which small businesses dominate, are less likely to offer benefits, in part because their costs are higher for small employers. Among workers, minority women and women raising children alone are least likely to receive benefits. Two benefits of particular importance to families are health insurance and paid time off. An estimated 31 million Americans have no health insur- ance; 80 percent of the uninsured are employed or the dependents of work- ers. Up to 12 million children are estimated to be without health insurance. At the same time, rapidly increasing health insurance costs are a major problem for employers; they have responded by increasing worker contribu- tions for health insurance and decreasing their own contributions to de- pendent coverage. Benefit reductions cause particular problems for low- income workers. These trends are likely to continue unless health insurance costs stop rising at recent rates. Many employers now provide paid time off, such as vacations and sick leave, and help maintain employees' income through short-term disability programs. The precise terms of these provisions affect how much time employees are allowed for pregnancy, childbirth, and general family care. Availability of paid time off also varies by industry, firm size, unioniza

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STANDARD EMPLOYEE BENEFITS 113 lion, and occupation. Although precise data are not available, there is ample evidence that many employed women have no access to maternity benefits or any paid leave for childbirth. We conclude that, while the current struc- ture of benefits is substantial for many workers, it is inadequate for others. The outlook for improvements in voluntary benefits is not promising, in part because of two economic developments. One is that tax rates are now lower, so the advantages of receiving benefits rather than wages are no longer as great. Another is the decline in real incomes. In a period of rising real incomes, employees prefer to increase benefits; when real in- comes stagnate or decline, employee demand for benefits slackens. Added to the rising costs of some programs, this does not bode well for further increases in voluntary benefits. We conclude that, although the growth in benefits over the last 50 years has contributed substantially to the security and well-being of workers and their families in this country, millions of Americans lack access to essential benefits. Others have benefits that are inadequate to meet their family needs. Moreover, the near-term outlook for improvements in volun- tary benefits is not promising.