employers pay for the massively increased medical costs directly though? Its not hard to see that when medical costs increase by 6-10% they would hesitate to increase wages
Put it this way: If the government increases my tax by $10k per year and my employer increases my gross salary $10k per year in response, did I get a pay raise?
Also, it's known that as medical prices rise, the percentage of the prices that insurance actually pays goes down. Are you sure they're paying more?
Also, why do countries with universal healthcare have such cheaper healthcare of a similar quality?
If you count inflation in medical and housing costs as an increase in wages, the "wedge" disappears, yes -- but why would you do that for any other purpose than making the wedge disappear?
No, it's very telling that labor saving devices, which have squished the largest industry into economic insignificance many times over, have not resulted in the ability for normal people to work less. Clearly, the benefits have gone elsewhere. "The benefits went into technology! Think of the iPhones!" The median financed smartphone is 1/50th the cost of median rent, try again.