tirement and health benefits. Note, too, that
the only period in which the highest earners
radically outstripped other workers in terms
of total compensation was the decade of the
rectly in cash: employers' payroll tax contri-
butions to cover half of Social Security and
tions to employer-sponsored retirement plans,
sponsorship of health care plans. To get a bet-
ter sense of what's happening to benefits, we
estimated the costs of each component sepa-
rately (see the figures on pages 50 and 52).
lative changes in 1977 and 1983 to deal with
the financing crisis facing Social Security. The
effect was larger for high earners because
Congress made the tax changes progressive in
the upper range. Payroll tax inflation moder-
ated during the 1990s because the phase-in of
these earlier rate increases had been com-
pleted. But the extension of the Medicare tax
to all earnings in 1993 did lead to a somewhat
higher growth rate for higher-wage workers
during the decade. In the 2000s, increased
creased real earnings.
fits shrank across the board in the 1980s and
ploded. The explanation for this erratic pat-
tern is somewhat complicated, but is worth
telling because it bears lessons for the future.
legislation to curtail contributions. As a result,
the financing of the baby boom generation's
retirement benefits was fundamentally al-
tered. Employers were given incentives to
push the funding toward the latter part of the
boomers' careers. Thus, from the late 1980s
well into the 1990s, many pension plan spon-
sors went years without making any contri-
butions. Then, in the mid-1990s, funding was
depressed by another phenomenon: rapid ap-
preciation of pension portfolios because of
the skyrocketing stock market. The net appre-
ciation of pension trusts extended the period
in which sponsors were not required to con-
tribute to their pension plans.
early in the year 2000, reducing the value of
pension assets even as long-term interest rates
fell. That latter phenomenon effectively wid-
ened the gap between plan obligations and