Labor Day 2005: Employees May See Benefit Changes as Employers Struggle with Skyrocketing Costs

WASHINGTON, Aug. 24 -- A new report released today, The American Workplace 2005, looks at examines employer attempts to preserve health care, retirement and other benefits for future generations of workers. Faced with an aging workforce, spiraling health costs and increased foreign competition, employers are being forced to make difficult decisions that have a direct impact on the quality of their employees’ lives and on their own ability to remain competitive.

In many ways, benefits have replaced salary as the number one consideration of employees when deciding to change jobs. What were once widely referred to as “fringe” benefits are today no longer on the “fringe,” but instead make up an important part of the employee compensation picture. Surveys have shown many employees would take a salary cut to maintain their current level of benefits or have benefits improved. Unions and employers clash as frequently over proposed changes to benefits as they do over pay schedules and job stability.

The American Workplace 2005 looks at the underlying demographic and cost trends that have resulted in the challenges that employers face in providing benefits today. Growth in the labor force has slowed dramatically from nearly nine percent in 1985-90 to barely five percent in the last five years. The resulting labor shortage that may occur over the next 30 years will leave fewer workers to produce the revenue companies need to pay for benefit programs. These trends make it unlikely that America’s employers can continue indefinitely to shoulder the cost of the benefits programs they have in place.

Increased labor force participation of women combined with an overall reduction in employee tenure has led to increased workforce mobility. These demographic trends have diminished the value of traditional defined benefit plans to today’s workers. At the same time, low interest rates, higher administrative costs and a bear market increased the cost of providing retirement benefits. Employers’ attempts to redesign their pensions to meet the needs of a changing workforce have met legal challenges.

The report also examines the presence of insurance with low point-of-service costs in the health care market, which leaves patients disconnected from the cost of their medical treatments. Furthermore, the lack of transparent information on the price, quality and effectiveness of care prevents them from becoming educated consumers of medical services. The rapid rise in health care spending-more than twice the rate of overall inflation-has driven up health insurance costs for employers.

EPF’s press briefing is scheduled to begin at 9 a.m. EDT on August 24 at 1015 Fifteenth Street N.W., Suite 1200, Washington, D.C. 20005. A telephone and Internet press briefing will follow at 11:30 a.m.

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The Employment Policy Foundation is a non-partisan, nonprofit economic research and education foundation that focuses on workplace trends and policies.

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