EARNINGS AND BENEFITS

EARNINGS

The federal government measures both the mean earnings (average) and the median earnings (one-half earn more than this figure, and one-half earn less than this figure) of the nation's workers. Individual income is the total amount brought in by an individual worker, and household income is the total amount earned by all members of a family, including earnings and money received from interest, pensions, and other sources.

Full-Time, Year-Round Workers

In 2006, according to statistics reported by Bruce H. Webster Jr. and Alemayehu Bishaw of the U.S. Census Bureau in Income, Earnings, and Poverty Data from the 2006 American Community Survey (August 2007, http://www.census2010.gov/prod/2007pubs/acs08.pdf), the median earnings for full-time, year-round workers were $42,210 for men and $32,649 for women; women earned just 77.3% of what men earned. Asian workers earned the highest median salaries in 2006. Asian men earned a median of $50,159; Asian women earned a median of $38,613, 77% of what Asian men earned. Non-Hispanic white men earned a median of $47,814; non-Hispanic white women earned a median of $35,151, 73.5% of what non-Hispanic white men earned. African-American men earned a median of $34,480 in 2006; African-American women earned $30,398, 88.2% of what African-American men earned. Hispanics earned the lowest median salaries in 2006, but Hispanic women were closer in percentage to what Hispanic men earned than women of other races and ethnicities were to corresponding males of their same race or ethnicity. Hispanic men earned a median of $27,490; Hispanic women earned $24,738, 90% of what their male peers earned.

According to data reported by the U.S. Census Bureau in Historical Income Tables (March 2007, http://www.census.gov/hhes/www/income/histinc/p36ar.html), the median earnings of men aged fifteen and over working full-time, year-round, when converted to year 2005 dollars, have changed very little for more than three decades. In 1972 men had a median income equal to $42,617 in 2005 dollars. Wages dropped to a low of $40,958 in 1995, but had risen again to a high of $44,262 in 2001 before dropping again to below the 1972 level, at $42,188, in 2005. Women's earnings, on the other hand, have substantially increased. In constant 2005 dollars, women who worked full-time, year-round earned a median of only $24,479 in 1972. By 2005 full-time female workers earned a median of $33,256, down from a high of $33,619 in 2002.

Another way to examine incomes is to look at household incomes. Households in which two or more adults are working tend to have higher incomes than do single-adult households. In 2006 the median household income was $48,201. (See Table 6.1.) Married-couple households had a higher median income ($69,716) than did nonfamily households ($29,083). Family households headed by a single householder had substantially lower incomes than did married-couple households, especially when headed by a female. Family households headed by a single male had a median income of $47,078, and family households headed by a single female had a median income of only $31,818.

The race and ethnicity of a householder affected median household income as well. Asian householders had a substantially higher median income than any other group in 2006, at $64,238. Non-Hispanic white households had a median income of $52,423, Hispanic households had a median income of $37,781, and African-American households had a median income of just $31,969. (See Table 6.1.) Households of all races and ethnicities saw a slight rise in median incomes from 2005 to 2006 except for non-Hispanic white households, which experienced a slight decline in median income in 2006.

Production and Nonsupervisory Earnings

According to data from the U.S. Bureau of Labor Statistics (BLS) in Current Population Survey (2008, ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb2.txt), production workers and workers not in management positions on private, nonfarm payrolls worked an average of 33.8 hours per week in 2007 and earned a mean salary of $17.42 per hour. Hourly salaries and hours worked varied by industry. Workers employed in professional and business service occupations worked an average of 34.8 hours per week at an hourly wage of $20.13. People employed in the private service-providing industry sector worked an average of 32.4 hours and earned less than the overall average—$17.10 per hour. Those in leisure and hospitality worked fewer hours per week (25.5) and earned only $10.41 per hour, well below the mean for all workers; the combination of their low wages and fewer hours meant that these workers earned much less than workers in other industries. Natural resources and mining workers and construction workers earned more than the total average earnings, bringing in, on average, $20.96 and $20.95 per hour, respectively. Workers in both categories also worked longer hours per week than the overall average (45.9 hours per week for those employed in natural resources and mining industries, and 39 for construction).

Occupations

Another way to look at earnings is to consider specific occupations. Someone working in a specific occupation may work in one of several industries. For example, a photographer might work at a university (in the education and health services industry), or in a photography studio (in the professional and business services industry). A janitor might work in a hospital (in the education and health services industry), in a manufacturing plant (in the manufacturing industry), or in a hotel (in the leisure and hospitality industry). However, the training and work experience requirements for the position, regardless of the industry in which it is located, are the same.

As reported by the BLS in Employment and Earnings (January 2008, http://www.bls.gov/cps/cpsaat39.pdf), full-time wage and salary workers earned a median of $695 per week in 2007, with men earning a median of $766 and women earning a median of $614. (See Table 6.2.) The highest paid occupations tended to be in management, business, and financial occupations and engineering occupations. These occupations almost always require advanced degrees. Chief executives, for example, earned the highest median weekly earnings of $1,882. Engineering managers ($1,713) and computer and information systems managers ($1,553) were also highly paid. All engineers made high median weekly earnings, especially aerospace engineers ($1,557), electrical and electronic engineers ($1,454), and chemical engineers ($1,410). Lawyers and judges also made high median weekly salaries ($1,591 and $1,728, respectively), as did pharmacists ($1,838) and physicians and surgeons ($1,475).

The lowest paid occupations were concentrated in the service occupations, particularly food preparation and service related occupations. These occupations require little, if any, education or training. In 2007 food preparation workers made a median of only $349 per week, counter attendants,

cafeteria, food concession, and coffee shop workers made only $305 per week, waiters made $380 per week, dishwashers made $316 per week, and hosts and hostesses in restaurants made a median of $366 per week. (See Table 6.2.) Child care workers earned only $368 per week and personal and home care aides made just $380 per week. Agricultural workers were also paid very little, earning a median of $352 per week.

Although those working in managerial and professional specialties tended to earn the highest wages in 2007 and those in service occupations tended to earn the lowest wages, within each occupational grouping, many categories earned significantly more or less than the median wage. For example, among managerial occupations, chief executives had the highest weekly wages ($1,882), while lodging managers ($696) and food service managers ($645) earned

the least. (See Table 6.2.) People working in sales and office occupations earned a median weekly wage of $598, less than the median earnings of all workers, but considerable variability existed. Sales representatives of securities, commodities, and financial services earned far more than others ($1,128). On the other hand, cashiers ($356), telemarketers ($407), and door-to-door sales workers and news and street vendors ($464) earned considerably below the median weekly wage for all workers in sales and office occupations. Among office workers, tellers ($455) and stock clerks ($445) earned particularly low wages, while postal mail carriers ($896) earned relatively high wages.

The manufacturing industry is projected to lose jobs between 2006 and 2016, and considerable variability existed in the median wages of those working in production occupations. Although the median weekly wage of all workers in production was $581 in 2007, first-line

supervisors made quite a bit more, with a median of $824 per week. (See Table 6.2.) Computer control programmers and operators ($780) and tool and die makers ($918) also made fairly high median weekly wages. On the other hand, pressers of textiles, garment, and related materials made among the lowest wages of all workers, at $344 per week. Sewing machine operators ($361) and laundry and dry-cleaning workers ($380) also made very low median weekly wages. See the BLS publication Occupational Outlook Handbook (http://www.bls.gov/oco/home.htm) for detailed descriptions of each job.

Starting Salaries for New College Graduates

The National Association of Colleges and Employers (NACE) reported in Salary Survey (September 12, 2007, http://www.naceweb.org/press/display.asp?year=2007&prid=264)

that starting salaries offered to new college graduates had increased over the previous year. The $53,051 average offer to computer science majors in 2007 represented a 4.5% increase over the 2006 average. Economics graduates had average salary offers of $47,782, while finance graduates received average offers of $46,442. Management information systems graduates received average offers of $47,407, up 4.7%

from the previous year, while marketing graduates' average offer of $39,269 was 5.6% higher than the year before.

NACE further indicated that almost all disciplines in engineering had increases in their average salaries in 2007. Chemical engineers received average starting salary offers of $59,218, up 5.2% from the year before. Civil engineers received average offers of $48,998, up 6.3% from 2006. Electrical engineers received average starting offers of $55,333, up 3.8% from the previous year. Mechanical engineering graduates received starting offers of $54,057 on average, up 4.3% from the previous year.

Liberal arts graduates enjoyed some of the biggest proportional increases in average starting salary offers, according to the NACE survey, although the amount of starting offers lagged behind offers to recent graduates of more technical disciplines. Every major liberal arts category saw an increase in average starting salary offers, including history majors, who averaged offers of $35,092, up 6.1% over the previous year; political science and government majors, who averaged offers of $35,261, up 6.5% over 2006; and sociology majors, who averaged offers of $32,161, up 3.4% over the previous year.

EMPLOYEE BENEFITS

Government Employment

In 2008 the BLS stated in Career Guide to Industries (“State and Local Government, Except Education and Hospitals,” http://www.bls.gov/oco/cg/cgs042.htm) that employer-provided benefits, such as health insurance, life insurance, and retirement benefits, were more commonly available to government employees than they were to workers employed in private industry. About three-fourths (73%) of employees of state and local governments had paid holidays in 1998 (still the most current statistics available from the BLS and published in Employee Benefits in State and Local Governments, 1998, December 2000, http://www.bls.gov/ncs/ebs/sp/ebbl0018.pdf). More than one-third (38%) of government workers were eligible for paid personal leave, and 96% had paid sick leave. Also as a benefit, 95% of state and local government employees were offered unpaid family leave. Most (89%) participated in employer-provided life insurance plans, and 86% had medical care plans, with 51% of the participants paying a monthly contribution to the health plan. Most government employees (98%) were provided with retirement income benefits.

Private Industry

According to data from the BLS in National Compensation Survey: Employee Benefits in Private Industry in the United States (August 2007, http://www.bls.gov/ncs/ebs/sp/ebsm0006.pdf), workers in goods-producing industries had greater access to benefits in March 2007 than did employees of service-producing industries. In addition, people who worked for companies that employed at least a hundred people often had greater access to a variety of benefits than did employees of small companies, especially retirement plans, health insurance, and disability benefits. Other benefits that workers in private industry typically received included paid holidays and vacations and life insurance plans, and occasionally child care resources, stock option plans, short-term disability plans, and long-term care insurance. These benefits are discussed in more detail below.

PAID HOLIDAYS AND VACATION DAYS. The number of paid holiday and vacation days that workers in private industry received varied by occupation, wages, size of workplace, union status, and industry. Over three-quarters (77%) of all workers received paid holidays and paid vacations, as reported by the BLS in the National Compensation Survey. On average, these workers received eight paid holidays per year. Workers whose wages were $15 per hour or higher averaged nine paid holidays, while workers with lower wages averaged only seven. Unionized workers received, on average, ten yearly paid holidays, compared with nonunion workers, who averaged only eight. The average number of vacation days workers were eligible for increased with length of service. After one year, as reported in the National Compensation Survey, workers were eligible for, on average, 8.9 vacation days, after five years they were eligible for 13.5 days, and after ten years they were eligible for 16.1 days. Workers in management and professional occupations were eligible for significantly more vacation days than workers in other occupations, as were workers who made $15 per hour or more and workers who worked in establishments with at least one hundred workers.

HEALTH INSURANCE. According to the National Compensation Survey, 71% of all private industry workers had access to employer-provided medical care plans and slightly more than half (52%) participated in such plans in March 2007. Medical care plans were the benefits most widely available to workers in private industry, followed closely by prescription drug coverage. (See Figure 6.1.) Nearly half of all workers (46%) had access to dental care, 29% had access to vision care, and 68% had access to prescription drug coverage. (See Table 6.3.) Workers in management and professional fields had more access to medical care (85%) than did workers in other fields, as did workers whose wages were $15 or more (87%), workers in goods-producing industries (85%), and workers in establishments with at least one hundred workers (84%).

Three-quarters (76%) of employees with single-coverage medical care and 87% of employees with family coverage were required to make a contribution toward their health insurance in March 2007. (See Table 6.4 and Table 6.5.) Employees with single coverage were required to pay, on average, 19% of their health insurance premiums, while those with family plans were required to pay, on average, 29% of their health insurance premiums. As shown in Table 6.4 and Table 6.5, employees with single coverage were required to pay an average of $81.37 per month, and those with family coverage were required to pay an average of $312.78 per month. These premiums were up from an average of $60.24 per month for single coverage and $228.98 per month for family coverage in 2003, figures reported by the BLS in National Compensation Survey: Employee Benefits in Private Industry in the United States, 2002–2003 (January 2005, http://www.bls.gov/ncs/ebs/sp/ebbl0020.pdf).

Some employees in private industry had access to other health-care benefits in addition to health insurance in 2007. The National Compensation Survey found that 33% of all employees had access to health-care reimbursement accounts, a type of health-care plan in which employers set aside funds to reimburse employees for qualified medical expenses. (See Table 6.6.) Another 8% of all employees had access to health savings accounts, in which employees themselves could place pretax dollars into health-care accounts and then get reimbursed from that account for qualified medical expenses. Workers in management and professional occupations were much more likely than any other groups to have access to these accounts. More than half (55%) of all managers and professionals had access to health-care reimbursement accounts, compared with only 35% of sales and office workers and lesser proportions of the other major occupational groups. Likewise, managers and professionals (12%) as well as sales and office workers (11%) had more access to health savings accounts than did workers in other occupations. Workers that made at least $15 per hour were more likely to have access to both of these benefits than were workers who made less. Workers in larger establishments (one hundred workers or more) also had more access to these benefits than did workers in smaller establishments.

Other health-care benefits offered to some workers in private industry included wellness programs (25%), fitness centers (13%), and employee assistance programs (42%). (See Table 6.6.) Employees of establishments

with one hundred workers or more were much more likely to have access to these benefits than other employees, as were employees with wages of $15 per hour or more.

RETIREMENT BENEFITS. Six out of every ten workers (61%) in private industry had access to retirement benefits in March 2007, according to the National Compensation Survey. Half of all workers (51%) participated in these plans; 84% of all workers with access to a retirement plan took part in it. (See Table 6.7.)

Retirement plans may be one of two types: defined benefit or defined contribution. Defined benefit plans promise a specified monthly benefit at retirement. Most benefit plans of this type are protected by federal insurance provided through the Pension Benefit Guaranty Corporation. Defined contribution plans, on the other hand, do not promise a specific amount of benefits at an employee's retirement. Instead, the employer or the employee, or more commonly both, contribute a set amount of money (usually a percentage of annual salary) to the employee's retirement account. These contributions are generally invested in stock, real estate, or other investments. The balance in the account on retirement is available to the employee. Defined contribution plans include 401(k) plans, 403(b) plans, and employee stock ownership plans. Defined contribution plans were much more commonly available to workers in private industry than were defined benefit plans in 2007. (See Figure 6.1.)

In 2007 one in five workers in private industry (21%) had access to a defined benefit plan; almost all took part in these plans, because they generally require no

contribution from the employee. (See Table 6.7.) Over half (55%) of all workers had access to a defined contribution plan; 43% of all workers participated in such a plan. Only 77% of all workers with access to a defined contribution plan took part in it.

As with other benefits, managers and professionals were the most likely workers to have access to retirement benefits (76% of them did); service workers were least likely to have such access (36% of them did). (See Table 6.7.) Unionized workers were much more likely than nonunion workers to have access to retirement benefits (84% and 58%, respectively). Workers who earned $15 per hour or more were more likely than lower-paid workers to have retirement benefits (76% and 47%, respectively). Workers in establishments with one hundred or more workers were more likely than workers in smaller establishments to have access to retirement benefits (78% and 45%, respectively).

Although women have increasingly entered the workforce since the 1970s, elderly women continue to have lower retirement income than do men. As reported by the U.S. Government Accountability Office in Retirement Security: Women Face Challenges in Ensuring Financial Security in Retirement (October 2007, http://www.gao.gov/new.items/d08105.pdf), this is largely due to their lower labor force participation and lower average lifetime earnings. Therefore, women have less income from pensions and Social Security, both income-dependent sources of retirement benefits. This lower income is particularly problematic for divorced women and widowed women.

EMPLOYEE CONTRIBUTIONS. In most defined contribution retirement plans, such as the 401(k), employee contributions are made with pretax dollars. This means the employee's taxable income is reduced by the amount of the contribution. However, taxes are deferred, not eliminated. When the employee starts withdrawing funds from the plan, taxes must be paid on the pretax contributions, any employer-matching funds, and any earnings on these contributions.

All of these plans require a basic employee contribution, which may be matched by the employer. However, not all employers make matching contributions. Many plans allow an additional contribution by the employee in excess of the maximum amount matched by the employer. This is called a voluntary employee contribution.

Employee savings, thrift, and retirement benefit plans are expected to come under closer public and government scrutiny in the wake of individual and corporate losses caused by stock market fluctuations in the early 2000s. During the strong market years of the mid-to late-1990s, some industry leaders and politicians believed that even government-mandated programs such as Social Security should rely more heavily on private-market investment at the discretion of the individual worker. As the stock market dropped in value at the start of the decade, particularly following the terrorist attacks in New York City and Washington, D.C., in September

2001, opponents of privatizing Social Security argued that individual workers should not have to shoulder increased risk in the investment of their own Social Security funds.

Laws related to employee retirement plans changed following the 2001 accounting scandal and subsequent bankruptcy of Enron Corporation, which left employee 401(k) accounts ravaged. Many Enron employees, with management's encouragement, had heavily invested their retirement savings in their own company. A large number of current and former Enron employees lost their entire retirement savings when the company collapsed. In the aftermath of the Enron scandal, Congress began to discuss restricting the percentage of an employee's 401(k) that can be invested in the employee's own company. Congress passed a Pension Protection Act in 2006 that made employer retirement savings plans less vulnerable. The legislation included provisions addressing employee retirement income security, the tax ramifications of savings plans, benefit accrual standards, and health care affordability.

Social Security

The Social Security Act of 1935 created the Old-Age and Survivors Insurance Program, which provided retirement benefits to workers aged sixty-five and older. It financed these benefits through a payroll tax, paid in part by employers and in part by employees. By January 2007, according to the Employee Benefit Research Institute (EBRI) in “The Basics of Social Security” (May 2007, http://www.ebri.org/pdf/publications/facts/0507fact.pdf), retired workers received an average monthly Social Security benefit of $1,044. A retired couple, both receiving benefits, averaged $1,713 per month.

The EBRI indicated that the aging of the U.S. population and the expected retirement of many baby-boomers in the coming two decades will put a severe strain on Social Security funds. Using intermediate cost assumptions, the

government estimates that the trust funds that finance Social Security benefits (through a combination of taxes and interest income) will become bankrupt by 2041.

Many proposals have been put forth to keep the Social Security trust fund solvent. The proposals all would cut benefits for future retirees, especially for those born later, according to the EBRI in “Estimating the Value of Changes in OASI Benefits under Social Security Reforms” (June 2006, http://www.ebri.org/publications/notes/index.cfm?fa=notesDisp&content_id=3643). For example, benefit cuts for people born in 1962 might range from $300 annually for those with the smallest benefits to about $3,000 annually for those entitled to the largest benefits. However, workers born in 1997 could see reductions in annual benefits ranging from $2,200 to $10,370. Therefore, many retirees in the future will not be able to maintain their standard of living without saving additional amounts of money themselves to supplement their reduced Social Security benefits. This prospect makes retirement benefits offered by employers as part of the employment package even more valuable.

Americans are very uncomfortable with the crisis facing the Social Security system, as it puts their overall quality of life in retirement years at risk. Lydia Saad of the Gallup Poll reported in “State of the Union: Both Good and Bad” (January 24, 2008, http://www.gallup.com/poll/103918/Americans-State-Union-Ratings-All-Bad.aspx) that less than a third of people surveyed (31%) in January 2008 were satisfied with the state of the nation's Social Security and Medicare (health insurance for seniors) systems. Additional Gallup data from 2005 (http://www.gallup.com/poll/1693/Social-Security.aspx) indicated that 45% of Americans agreed that immediate changes were needed to ensure the long-term future of the Social Security system. Another third (36%) believed changes were needed within the next decade, and nearly two in ten (19%) either had no opinion or did not think major changes were needed before 2015. More than half of poll respondents from April and May 2005 (54%) opposed a proposal that would cut Social Security benefits for middle and high income workers even if benefits for lower income workers and those born before 1950 were not affected. Nearly four in ten (38%) favored this idea.