Recent increases in U.S. health benefits costs are holding down increases in U.S. workers’ wages.
Three economists at the Federal Reserve Bank of New York—Jaison Abel, Richard Deitz and Nick Montalbano—gave that assessment in an analysis posted on the New York Fed website.
New York Fed economists have data showing that average wage growth in the New York Fed’s region has fallen every year since 2022, to 3 this year, from about 6% in 2022.
Employer health benefits costs have increased by about 20% over that same period.
The average annual premium for employer-sponsored family health coverage was $27,000 in 2025, or “roughly equivalent to the wage of a full-time worker paid $15 per hour,” the economists wrote.
See also: Record-breaking healthcare premiums ‘not a great’ milestone
In February, the New York Fed included questions about health benefits costs and wage growth in an employer survey.
The survey participants reported that their health benefits costs increased by an average of 13% this year.
The employers with rising health benefits costs told the New York Fed that they had increased workers’ wages an average of 3.8%.
If health benefits costs had not increased, the average increase in wages could have been 4.7%, the economists estimated.
The 0.9-percentage-point reduction in wage growth is “the equivalent of a 20% drag on wage growth,” the economists said. “Since health insurance expenditures represent a significant portion of total labor compensation for many firms, the true cost of employing workers at these firms has been climbing faster than wage increases alone suggest potentially squeezing profit margins and making labor more expensive than it appears from the wage bill alone.”
The backdrop: The recent government shutdown and other challenges have hurt federal government agencies’ ability to collect and report timely employment data this year. But private organizations have reported seeing a softer labor market, with low-wage jobs being much easier to find than high-wage jobs.
What it means? Many low-wage workers lack access to health benefits.
If low-wage jobs are really easier to get than high-wage jobs, one reason could be that the full cost of employing high-wage workers who have employer-sponsored health benefits is increasing much more quickly than the full cost of employing low-wage workers who have no employer-sponsored health benefits.
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