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**fashikn** · 08-23-2009, 12:08 AM

NYE, the point is a bit subtle but important.

When a business purchases its employee's health insurance for him then that health insurance has some value to the employee. When a business (or employee) pays the taxes that arise from his salary, the employee sees absolutely no value from that. If the employee values his health insurance at the same price that the business paid for it (which is at least true to a first approximation) then there is no "wedge" between the the two; it's just compensation in a different form. When the employee values the taxes paid at 0 then there is a tax "wedge"; the business is paying more to hire the employee than the employee is seeing in total compensation.

Would you think that wages have to increase due to this perception of lack of value? Is there any data to suggest they do?

08-23-2009, 12:08 AM	#24
fashikn Join Date Nov 2005 Posts 377 Senior Member	NYE, the point is a bit subtle but important. When a business purchases its employee's health insurance for him then that health insurance has some value to the employee. When a business (or employee) pays the taxes that arise from his salary, the employee sees absolutely no value from that. If the employee values his health insurance at the same price that the business paid for it (which is at least true to a first approximation) then there is no "wedge" between the the two; it's just compensation in a different form. When the employee values the taxes paid at 0 then there is a tax "wedge"; the business is paying more to hire the employee than the employee is seeing in total compensation. Would you think that wages have to increase due to this perception of lack of value? Is there any data to suggest they do?
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