What is compensation? And what should it be?

Yesterday’s Supreme Court decision in Burwell v. Hobby Lobby Stores, Inc. was at its heart a case about religious liberty and women’s health. But it was also a case about employee compensation. Two companies, Hobby Lobby and Conestoga Wood Specialties, objected to the federal government’s decision to include contraceptives in mandated health insurance. Putting aside the constitutional issues, the case raises an important question: What’s the proper role of employers in providing benefits, such as health insurance, to employees?

Put simply, all wages are compensation but not all compensation takes the form of wages. If you have health insurance through your job, then the funds spent to purchase the insurance is part of your compensation. The same goes to contributions to retirement saving plans such as 401(k) plans. Your employer can compensate you in many ways that go beyond cash compensation.

Over the past 60 years, employers have, on average, shifted toward those other ways. Researchers at the Economic Policy Institute put together data on the long-term trends in compensation. According to their calculations, the average hourly wage was about 93 percent of average compensation in 1948. By 2013, wages were a smaller portion of compensation, dropping to just over 80 percent of average compensation.

So the shift toward more non-wage benefits for many employees has changed the composition of compensation but it has not altered trend in the inequality of compensation, which is the same as wage inequality—rising.

A look at current Bureau of Labor Statistics data can show the specific forms of compensation. (Note: the data from EPI and the BLS do not perfectly match due to different data sets and the fact that they look at slightly different groups of workers.) According to the Employer Costs for Employee Compensation data set, wages and salaries for all private-sector workers are about 70 percent of compensation in the first quarter of 2014. All paid leave, including vacation, holidays, sick leave, were 7 percent of total compensation. Employer contributions to private insurance, such as health insurance, were about 8 percent of compensation. Retirement savings plans were just under 4 percent of compensation. And contributions to Social Security, Medicare, and unemployment insurance make up another 8 percent of compensation.

But of course, these numbers are all averages. A vast number of American workers have no access to these programs and don’t receive compensation in these forms. Many employers don’t provide health insurance or access to a retirement savings program. And employers are under no legal obligation to provide paid family leave insurance. Denying some workers access to these programs is not only discriminatory but also makes the pay-setting process less transparent. The locked-out workers would see a reduction in wages in return for these benefits, but given the willingness of other workers to take this trade-off many of these workers may do the same.

Given the wide range of employee benefits provided by employers and the difficulty in sometimes providing those benefits, we have to ask if employers are the right vehicles for providing some non-wage benefits. Perhaps the provision of some these benefits are better handled by the federal government. And some benefits might be best left for workers to purchase in the market with their wage earnings. These questions about the proper role of employer and government in providing benefits are some of the most controversial in our policy debates. But that intensity is just a sign that they are the questions we should be asking and need to answer.