Many economists have lamented that income inequality has grown over recent decades. Although it is true that wage inequality has increased, compensation inequality may not have. When I mention “compensation inequality,” I refer to the total package of compensation that a worker receives. This includes wages, health insurance, 401(k) benefits, and other non-wage forms of compensation. In previous posts, I have mentioned that once health insurance is taken into account, inequality may in fact be shrinking.
A recent NBER working paper by Burkhauser and Simon (2010) also shows that inquality is in fact decreasing once one taking into account health insurance costs. This chart provides information on changes in income and total income between 1995 and 2008. Income includes only raw wages, but “total income” also takes into account workers compensation in the form of health insurance. The authors use this evidence to claim that “…ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend.”
Evidence from the paper is also presented in graphical format. The first table below shows the change in income and total income between 1995 and 2008. The second chart describes the changes in various inequality ratios.