A century of expansion in employee benefits

This article was published in the May 2006 South Dakota Labor Bulletin.

When referring to the topic of employee benefits, you’ve probably heard the words “fringe benefits” before. You also may have noticed that the phrase has, in recent years, become limited in its use. The word fringe can be defined as “marginal,” “secondary” or “peripheral,” suggesting lesser significance.  However, as you will discover in the following article, employee benefits have become noticeably more than fringe over the past hundred years.

At the turn of the 20^th century, a typical wage could be expressed in cents, and employee benefits were generally unheard of. Employees were entirely responsible for retirement savings, and employer-based health benefits were non-existent. Working conditions were poor, long workdays and workweeks were standard, and there was no government resolution for workers who lost their jobs or were injured on the job.

The years following the turn of the century marked a revolution for the American workplace. Working conditions gradually improved, electricity boosted productivity, technology and communication evolved, and establishments became larger. Service industries grew by leaps and bounds, and professional and technical occupations followed. Along with changes such as these came widespread development in employee benefits.

The table below summarizes the general developments in employee benefits over the past hundred years. It is based on data from an article written by Albert E. Schwenk and Jordan N. Pfuntner of the U.S. Bureau of Labor Statistics (Compensation in the Later Part of the Century; Fall 2001 Issue of Compensation and Working Conditions).

Changes in employee benefits, as well as the workplace in general, were motivated by technological advances, intensified education, increases in capital, changes in workforce demographics, legislation and increased competition. These are just a few of the factors that created a more favorable workplace for employees at the end of the century than those at the start of it.

The tradeoff of technological advancements and intensified education led to economic growth and a more efficient workplace. Advancements in communication and the invention of the computer have made way for remarkable progress. The era also sparked increases in capital and the ability for employers to better compensate their employees. Increased competition locally, nationally and abroad has driven employers to offer appealing benefits packages to attract and maintain valuable workers.

Demographic changes in the workforce prompted the development of many benefits, including “family-friendly” ones. Having more women in the workforce has led to innovations in maternity leave and paternity leave. Also on the rise as a result is the availability of on-site childcare and daycare spending accounts. Over time, the graying population and longer life expectancy have put more emphasis on retirement plans and an altered focus on health insurance issues. The desire to maintain employer-based health insurance has led many aging workers to search for or continue working for employers who offer health insurance. Their primary reason for continuing employment is to retain medical coverage, which can get extremely expensive otherwise.

Certain acts of legislation have mandated the availability of several legally required benefits. The original Social Security Act was approved in 1935. The Federal Unemployment Tax Act of 1939 was followed by the development of individual state unemployment insurance programs. The Medicare bill was signed in 1965. The Family and Medical Leave Act of 1993 was established to grant family and temporary medical leave under certain circumstances. Together, these and other legislation were designed to assist and ensure the American worker.

Of course, the expansion in employee benefits over the years has come with a price. A recent U.S. Bureau of Labor Statistics report disclosed employee benefits now make up nearly 30 percent of total compensation for the average employee, as compared to just more than one percent of total compensation in 1929 (the first year benefits were measured). The largest of the costs involved come from legally required benefits, followed by insurance benefits, then retirement and savings, and finally paid leave and other costs.

Other non-quantifiable benefits have evolved over the years as well. Such benefits that don’t carry a definite price tag are flexible scheduling, on-the-job training, access to stock options and telecommuting opportunities. Also, in many cases, an employer may offer certain benefits, but does not contribute toward the cost of it. For example, an employer may offer its employees group medical insurance but does not contribute toward the cost of it. The employees are responsible for the entire premium if they choose to participate. The benefit in this case is that the employee can typically enroll in insurance coverage for cheaper than if they sought individual coverage on their own.

Employee Benefits in South Dakota

While historical progress in benefits data is not available for South Dakota specifically, it is likely the state has followed similar trends as the nation as a whole. A recent statewide survey of employers captured the status of employee benefits in today’s workplace.

The chart below gives an illustration of the share of employers in the private industry who offer select employee benefits in South Dakota. As shown, the most frequently offered benefits are paid vacation leave, paid holiday leave and medical insurance. Had the chart been created to represent employee benefits one hundred years ago, it probably would have been blank.

A more detailed look at the findings of the survey revealed that the availability of employee benefits varies by size class and by industry. In general, the larger the firm, the more likely major benefits will be offered. When comparing industries, certain industries like Utilities, and Finance and Insurance stand out in terms of offering benefits.

While the data discussed in the previous paragraphs illustrates the percent of employers offering benefits, the information can also be examined from another angle. The percent of employees offered benefits takes on a slightly different meaning; this data is a snapshot of employees rather than employers. In other words, a firm employing 250 workers would carry much more weight than a firm with three workers. Since larger firms are more likely to offer benefits, the percent of employees offered a benefit will usually be higher than the percent of employers offering that benefit. Findings at the “employees offered” level show that benefits most frequently offered to full-time employees are medical insurance (87 percent), retirement plans (83 percent) and paid vacation leave (82 percent).

Today’s workforce has become well acquainted with employee benefits, both legally required and not. One can only speculate whether progress will continue at the same pace, but it is apparent that employee benefits are a mainstay in the workplace.

If you have questions or need more information, contact Laura Sichmeller of the Labor Market Information Center at (605) 626-2314 or e-mail her at laura.sichmeller@state.sd.us.