Posted on 07/17/2004 1:31:26 PM PDT by Pikamax
July 18, 2004 Hourly Pay in U.S. Not Keeping Pace With Price Rises By EDUARDO PORTER
he amount of money workers receive in their paychecks is failing to keep up with inflation. Though wages should recover if businesses continue to hire, three years of job losses have left a large worker surplus.
"There's too much slack in the labor market to generate any pressure on wage growth,'' said Jared Bernstein, an economist at the Economic Policy Institute, a liberal research institution based in Washington. "We are going to need a much lower unemployment rate.'' He noted that at 5.6 percent, the national unemployment rate is still back at the same level as at the end of the recession in November 2001.
Even though the economy has been adding hundreds of thousands of jobs almost every month this year, stagnant wages could put a dent in the prospects for economic growth, some economists say. If incomes continue to lag behind the increase in prices, it may hinder the ability of ordinary workers to spend money at a healthy clip, undermining one of the pillars of the expansion so far.
Declining wages are likely to play a prominent role in the current presidential campaign. Growing employment has lifted President Bush's job approval ratings on the economy of late. According to the latest New York Times/CBS News poll, in mid-July, 42 percent of those polled approved of the president's handling of the economy, up from 38 percent in mid-March.
Yet Senator John Kerry, the likely Democratic presidential nominee, is pointing to lackluster wages as a telling weakness in the administration's economic track record. ``Americans feel squeezed between prices that are rising and incomes that are not,'' Mark Mellman, a pollster for the campaign, said in a memorandum last month.
On Friday, the Bureau of Labor Statistics reported that hourly earnings of production workers - nonmanagement workers ranging from nurses and teachers to hamburger flippers and assembly-line workers - fell 1.1 percent in June, after accounting for inflation. The June drop, the steepest decline since the depths of recession in mid-1991, came after a 0.8 percent fall in real hourly earnings in May.
Coming on top of a 12-minute drop in the average workweek, the decline in the hourly rate last month cut deeply into workers’ pay. In June, production workers took home $525.84 a week, on average. After accounting for inflation, this is about $8 less than they were pocketing last January. And it is the lowest level of weekly pay since October 2001.
On its own, the decline in workers’ wages is unlikely to derail the recovery. Though they account for some 80 percent of the work force, they contribute much less to spending. Mark Zandi, chief economist at Economy.com, a research firm, noted that households in the bottom half of the income distribution account only one-third of consumer spending, while those in the top half account for two-thirds.
Nonetheless, coming after the bonanza of the second half of the 1990’s, the first period of sustained real wage growth since the 1970’s, the current slide in earnings is a big blow for the lower middle class. Moreover, the absence of lower income households could also weigh on overall economic growth putting a lid on the mass market and skewing consumption toward high-end products.
"There’s a bit of a dichotomy," said Ethan S. Harris, chief economist at Lehman Brothers. "Joe Six-Pack is under a lot of pressure. He got a lousy raise; he’s paying more for gasoline and milk. He’s not doing that great. But proprietors’ income is up. Profits are up. Home values are up. Middle income and upper income people are looking pretty good."
Tales of tight budgets at the bottom are springing up across the country. "I haven’t had a salary increase in two years, but the cost of living is going up," said Eric Lambert, 42, a father of three who earns $13 an hour as a security guard at 660 Madison Ave. in Manhattan.
Silvia Vides, 43, who earns $11 an hour in a union job as a housekeeper at the Universal City Sheraton hotel in Los Angeles, said, "Sometimes I don’t know how I pay the bills and food and rent." She has cut back on all nonessential expenditures and she is four months behind on payments on $4,000 in credit-card debt.
Their woes are a product of supply and demand for labor. From 1996 through 2000 when employers were hiring hand over fist, real hourly wages of ordinary workers rose by 7.5 percent. Those for leisure and hospitality workers rose 9.6 percent, and retail workers’ climbed 8.9 percent. The raises continued even as the economy slipped into recession in 2001 and businesses began to shed workers.
From 2001 to 2003, 2.4 million jobs were eliminated, as businesses sharply reduced their work forces, refusing to hire back even as demand started picking up. Over a million of these jobs have been regained this year. Yet with the lowest number of people employed as a share of the population since 1994, there is still a plentiful supply of unused laborers looking for jobs.
As the rise in energy prices in the earlier months of this year led to a rising inflation, pushing prices in June up 3.2 percent from the same month of last year, the lackluster job market has left workers in a position of weakness to demand more money.
"Since last November, we’ve had a pickup in hiring and a pickup in hours worked in virtually all of our businesses," said David Pittaway, a senior managing director at Castle Harlan, an equity investment company that owns everything from Burger King franchises to a shipping company.
But there is clearly still a lot of slack. When Castle Harlan advertised in the newspapers to fill 70 to 80 positions at a Morton’s restaurant it opened in early July in White Plains, 600 to 700 people showed up.
Ms. Vides in California ticks off the items of a more expensive cost of living. She pays $850 a month for a one-bedroom apartment in Panorama City, $25 more a month than last year. The cost of a bus pass rose $10, to $45 a month. The electricity bill is much higher and food costs more. "I’ve got to do miracles with my salary," she said.
So Ms. Vides said she is outraged that the hotels negotiating a new contract with her union are offering annual raises of 40 cents to 45 cents an hour each year for the next five years. The raise in 2004 would be about 4 percent, just enough to keep up with the 4 percent rise in prices in Los Angeles over the last year. "This is miserly," said Ms. Vides, who said the union wants $1.25 this year and $1.50 next.
Colleen Kareti, president of the Los Angeles hotel employers’ council, which represents the hotels, argued that negotiations had not yet gotten down to bargaining over wages. But she pointed out that times are hard for the hotel business, too. "It’s been pretty bad for the last three years. We’re nowhere near the levels of business where we were in 1998 through 2000," Ms. Kareti said. Some economists warn that if wages remain depressed for a long time they may end up weighing on the economy. "The recovery will likely continue on despite the travails of lower-income households, but it can not flourish," Mr. Zandi said.
So far, spending was fueled mostly by debt, as consumers took advantage of bedrock-low interest rates to whip out their credit cards and refinance their mortgages. But as interest rates rise to keep inflation in check, continued growth in consumer spending will depend more on jobs and wages.
Spending is still holding up, led by strong corporate profits as well as higher salaries and bonuses at the upper end of the job distribution. But the lagging earnings at the bottom end are making for a somewhat lopsided expansion.
The upper echelons of consumer spending, at places like Saks Fifth Avenue, Neiman Marcus and Nordstrom department stores, are reporting gangbuster business. "I’m surprised by how well we’ve sold high-priced fashion at this stage," said Pete Nordstrom, president of Nordstrom’s full-line stores. But the other end, sales at stores open at least a year at big-box discounters like Target and Wal-Mart have disappointed, while sales of used cars are declining year over year, government figures show. "We’re not seeing the traffic, not even the same volumes of sales calls," said Richard Cooper, new vehicle sales manager at Jones Ford in Charleston, S.C.
Wages at the bottom should eventually recover, as businesses continue hiring to meet growing demand. The question is how fast. The amount of money workers receive in their paychecks is failing to keep up with inflation. Though wages should recover if businesses continue to hire, three years of job losses have left a large worker surplus.
``There's too much slack in the labor market to generate any pressure on wage growth,'' said Jared Bernstein, an economist at the Economic Policy Institute, a liberal research institution based in Washington. ``We are going to need a much lower unemployment rate.'' He noted that at 5.6 percent, the national unemployment rate is still back at the same level as at the end of the recession in November 2001.
Even though the economy has been adding hundreds of thousands of jobs almost every month this year, stagnant wages could put a dent in the prospects for economic growth, some economists say. If incomes continue to lag behind the increase in prices, it may hinder the ability of ordinary workers to spend money at a healthy clip, undermining one of the pillars of the expansion so far.
Declining wages are likely to play a prominent role in the current presidential campaign. Growing employment has lifted President Bush's job approval ratings on the economy of late. According to the latest New York Times/CBS News poll, in mid-July, 42 percent of those polled approved of the president's handling of the economy, up from 38 percent in mid-March.
Yet Senator John Kerry, the likely Democratic presidential nominee, is pointing to lackluster wages as a telling weakness in the administration's economic track record. "Americans feel squeezed between prices that are rising and incomes that are not,'' Mark Mellman, a pollster for the campaign, said in a memorandum last month.
On Friday, the Bureau of Labor Statistics reported that hourly earnings of production workers - nonmanagement workers ranging from nurses and teachers to hamburger flippers and assembly-line workers - fell 1.1 percent in June, after accounting for inflation. The June drop, the steepest decline since the depths of recession in mid-1991, came after a 0.8 percent fall in real hourly earnings in May.
Coming on top of a 12-minute drop in the average workweek, the decline in the hourly rate last month cut deeply into workers’ pay. In June, production workers took home $525.84 a week, on average. After accounting for inflation, this is about $8 less than they were pocketing last January. And it is the lowest level of weekly pay since October 2001. On its own, the decline in workers’ wages is unlikely to derail the recovery. Though they account for some 80 percent of the work force, they contribute much less to spending. Mark Zandi, chief economist at Economy.com, a research firm, noted that households in the bottom half of the income distribution account only one-third of consumer spending, while those in the top half account for two-thirds.
Nonetheless, coming after the bonanza of the second half of the 1990’s, the first period of sustained real wage growth since the 1970’s, the current slide in earnings is a big blow for the lower middle class. Moreover, the absence of lower income households could also weigh on overall economic growth putting a lid on the mass market and skewing consumption toward high-end products.
"There’s a bit of a dichotomy," said Ethan S. Harris, chief economist at Lehman Brothers. "Joe Six-Pack is under a lot of pressure. He got a lousy raise; he’s paying more for gasoline and milk. He’s not doing that great. But proprietors’ income is up. Profits are up. Home values are up. Middle income and upper income people are looking pretty good."
Tales of tight budgets at the bottom are springing up across the country. "I haven’t had a salary increase in two years, but the cost of living is going up," said Eric Lambert, 42, a father of three who earns $13 an hour as a security guard at 660 Madison Ave. in Manhattan.
Silvia Vides, 43, who earns $11 an hour in a union job as a housekeeper at the Universal City Sheraton hotel in Los Angeles, said, "Sometimes I don’t know how I pay the bills and food and rent." She has cut back on all nonessential expenditures and she is four months behind on payments on $4,000 in credit-card debt.
Their woes are a product of supply and demand for labor. From 1996 through 2000 when employers were hiring hand over fist, real hourly wages of ordinary workers rose by 7.5 percent. Those for leisure and hospitality workers rose 9.6 percent, and retail workers’ climbed 8.9 percent. The raises continued even as the economy slipped into recession in 2001 and businesses began to shed workers.
From 2001 to 2003, 2.4 million jobs were eliminated, as businesses sharply reduced their work forces, refusing to hire back even as demand started picking up. Over a million of these jobs have been regained this year. Yet with the lowest number of people employed as a share of the population since 1994, there is still a plentiful supply of unused laborers looking for jobs.
As the rise in energy prices in the earlier months of this year led to a rising inflation, pushing prices in June up 3.2 percent from the same month of last year, the lackluster job market has left workers in a position of weakness to demand more money.
"Since last November, we’ve had a pickup in hiring and a pickup in hours worked in virtually all of our businesses," said David Pittaway, a senior managing director at Castle Harlan, an equity investment company that owns everything from Burger King franchises to a shipping company.
But there is clearly still a lot of slack. When Castle Harlan advertised in the newspapers to fill 70 to 80 positions at a Morton’s restaurant it opened in early July in White Plains, 600 to 700 people showed up.
Ms. Vides in California ticks off the items of a more expensive cost of living. She pays $850 a month for a one-bedroom apartment in Panorama City, $25 more a month than last year. The cost of a bus pass rose $10, to $45 a month. The electricity bill is much higher and food costs more. "I’ve got to do miracles with my salary," she said.
So Ms. Vides said she is outraged that the hotels negotiating a new contract with her union are offering annual raises of 40 cents to 45 cents an hour each year for the next five years. The raise in 2004 would be about 4 percent, just enough to keep up with the 4 percent rise in prices in Los Angeles over the last year. "This is miserly," said Ms. Vides, who said the union wants $1.25 this year and $1.50 next.
Colleen Kareti, president of the Los Angeles hotel employers’ council, which represents the hotels, argued that negotiations had not yet gotten down to bargaining over wages. But she pointed out that times are hard for the hotel business, too. "It’s been pretty bad for the last three years. We’re nowhere near the levels of business where we were in 1998 through 2000," Ms. Kareti said.
Some economists warn that if wages remain depressed for a long time they may end up weighing on the economy. "The recovery will likely continue on despite the travails of lower-income households, but it can not flourish," Mr. Zandi said.
So far, spending was fueled mostly by debt, as consumers took advantage of bedrock-low interest rates to whip out their credit cards and refinance their mortgages. But as interest rates rise to keep inflation in check, continued growth in consumer spending will depend more on jobs and wages.
Spending is still holding up, led by strong corporate profits as well as higher salaries and bonuses at the upper end of the job distribution. But the lagging earnings at the bottom end are making for a somewhat lopsided expansion.
The upper echelons of consumer spending, at places like Saks Fifth Avenue, Neiman Marcus and Nordstrom department stores, are reporting gangbuster business. "I’m surprised by how well we’ve sold high-priced fashion at this stage," said Pete Nordstrom, president of Nordstrom’s full-line stores.
But the other end, sales at stores open at least a year at big-box discounters like Target and Wal-Mart have disappointed, while sales of used cars are declining year over year, government figures show. "We’re not seeing the traffic, not even the same volumes of sales calls," said Richard Cooper, new vehicle sales manager at Jones Ford in Charleston, S.C.
Wages at the bottom should eventually recover, as businesses continue hiring to meet growing demand. The question is how fast. "As unemployment slides down, more of the benefits of growth should flow to the working class," Mr. Bernstein said. "But not until we reach truly full employment are they likely to see their earnings rise at a level closer to that of productivity."
As unemployment slides down, more of the benefits of growth should flow to the working class," Mr. Bernstein said. "But not until we reach truly full employment are they likely to see their earnings rise at a level closer to that of productivity."
Nonsense. His position is clear to all. I am under no obligation whatsoever.
Don't worry, be happy!
$11 per hour to be a maid is pretty good, particularly when you factor in the tax-free tips.
Did you noticed that the illegal workforce as a tool for low end job wage stagnation was not mentioned?
DK
Another thing that's never mentioned in regards to illegals and work is that not only will they work for less, but their sheer numbers that keep increasing drive those wages down even further. When labor pools expand, the wages drop. More illegals means lower wages for all illegals.
Not me, I'm on my third raise this year (past 6 months), and I might just manage a fourth.
It's not bad to see your income increase 40% in one year without having to switch companies.
Good point. They are also not covered by the miriad of paperwork costs usually associated with permanent employment. So that cost is saved.
DK
So?
http://www.cis.org/articles/2004/back504.html
This study is pretty good done in May this year.
Republicans owe much of their electoral success to crossovers from patriotic, socially conservative, working-class voters. Their views on non-economic issues are the reason why. But if this trend continues, it gives the 'Rats an opening. Republicans are already hobbed by an image as the anything-business-wants-to-hell-with-everybody-else party. Issues such as stagnant wages and offshoring could drive these voters away.
How 'bout a loan? ;-)
No mention that the "Pew Hispanic Center found that workers who were not U.S. citizens claimed 378,496 jobs out of a net increase of 1.3 million from the first three months of 2003 through the first three months of this year." To wit, no mention of ILLEGAL "cheap" labor on labor supply / wage rates. nyt employees value diversity so the topic is off limits.
Altogether I'd say the article had little value though it did point out widely known factors such as in recent years spending was fueled mostly by debt, as consumers took advantage of bedrock-low interest rates to whip out their credit cards and refinance their mortgages.
Census Bureau numbers support the sagging earnings at the bottom end (and middle) as the higher earners get more and more of the aggregate income. At least it's not always the same people year to year, I suppose. This is a trend that been tracked through Republican and Democrat administrations. Why it's now "anti-Bush" to talk about it is a puzzle.
I don't think it's a given that these will be deducted, the way waitresses get taxes deducted on the amount of their tips, because tipping the maid is not an expected thing, the way tipping a waitress is. At any rate, the amount of tips this maid was getting certainly wasn't mentioned in this whinefest about how much she's struggling.
Shocking! How could that have been left out? ;)
I bought two little rib-eyes, a half-pint of sour cream for the potatoes, and a head of lettuce and two tomatoes for the green salad. (I already had the potatoes, Texas Toast, steak sauce, and frozen veggies at home).
The grocery bill was $18, not counting the gas to drive to the store.
I wonder how restaurants are coping with syrocketing food prices. Beef, chicken, pork, dairy products, vegetables...all about double from last year.
Thank goodness beer is still the same.
Yet that's the whole reason for uncontrolled immigration --- to decrease wages by bringing in millions of unskilled who will work for less than they can live on but use Medicaid, WIC, food stamps, and government housing subsidies gladly.
The opening is already there and huge! But the Democrats are ever more pigheaded - as abortion, athesim and pederasty are the most important for them.
So when so called Reagan Democrats are given choice between promotion of decadence or undermining their wages they are forced to chose the second as smaller evil.
If ever Democrats returned to the old style New Deal with the concern for working class and morality they would win with the one hand tied behing their back each time like FDR was winning.
What solution do you propose? That American workers go without medical care? (if they pay from their own pockets it has to come from somewhere, if not from wages then from credit cards or else). Or that the medical costs are somehow lowered?
the downward spiral of the US into a 3rd world nation of a few rich, many poor, and almost no middle class has just begun.
The free-traitors are succeeding in starting the drive of the US down to the levels of India and China.
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