Posted on 10/29/2005 9:05:21 AM PDT by Dubya
WASHINGTON - Despite roaring corporate profits, workers are having a tough time wrangling pay increases out of their bosses. Wages and salaries for all civilian workers grew by just 2.3 percent, the smallest amount in 25 years in the 12 months that ended in September, the Labor Department reported Friday. Adjusted for inflation, which is running at an annual pace of 4.7 percent, pay actually fell by a startling 2.3 percent.
If wages don't start to pick up, more Americans will feel the pressure of rising energy costs and interest rates.
"For those people whose incomes are primarily driven by wages, they're getting squeezed," said John Silvia, chief U.S. economist at Wachovia Securities in Charlotte, N.C.
Because business is booming and corporate profits are up sharply, economists are having a tough time making sense of the sluggish wage growth.
"We're starting to get into the range where we're puzzled that wages aren't advancing quicker given the profit numbers," said Kevin Hassett an economist at the American Enterprise Institute, a conservative think tank in Washington.
"If compensation does not keep up with inflation, then consumption will go down and people will have to borrow more," he said.
Sluggish wages will hit middle-income families hard because they get three-quarters of their income from earnings, said Jared Bernstein of the Economic Policy Institute.
As health care costs have exploded, benefits paid to workers have accounted for a good portion of the growth in total compensation in recent years.
But spending on benefits has started to slow, falling to 5.1 percent in the last 12 months from 6.1 percent the year before. As a result, total compensation rose by just 3.1 percent in last 12 months, the smallest increase since 1999.
Bargaining power soft Although the economy advanced at an annual rate of 3.8 percent in the third quarter, according to a report also released Friday, workers' bargaining power may still be soft because businesses aren't yet fighting one another for workers.
"There's a bit of hesitation to go into your boss's office and ask for a pay increase," said Mark Zandi, chief economist of Economy.com, an economic forecasting firm.
This is in stark contrast to previous expansions, where faster productivity growth spurred businesses to expand, which in turn bid up wages.
Productivity is growing faster than it did during the tech boom of the late 1990s, and companies certainly have the money on hand to hire: Profits jumped 4.7 percent in the second quarter from the quarter before.
But increased competition, from domestic and overseas rivals, has kept companies conscious of costs, economists said.
"Especially for workers where skill levels are not so important, there's a lot of pressure on wage costs there," said Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm in Lexington, Mass.
While companies have resisted granting pay raises that will permanently boost their costs, they have been generous with bonuses and stock options, which are tied to performance, according to Gault.
"These payments to labor have been increasing and have been benefiting from the strong performance of profits," he said.
The decline in union power seems to be dampening wages, economists said.
With their wages growing at an annual pace of 2.1 percent, union workers are barely keeping up with nonunion workers. The growth in benefit-spending for union workers snapped back to 4.1 percent in the past 12 months from 10.6 percent the year before.
"Unions have been taking it on the chin, especially in the manufacturing sector," Bernstein said. "As they make concessions, that's exactly the kind of wage outcome you get."
Screw the borrowing part!
We are just spending less, driving less, not buying anything unless we absolutely need it. Gotten to the point where few are getting raises or increased salaries.
Yet some people tell us how the economy is booming.
I say BS. Most everyone I know was making the same or better money 5 freaking years ago.
I'd rather compete with them here. All the Indian guys I know have huge mortgages, and need huge salaries to pay them. Of course, now that they've got a green card, they don't want to see any more H1Bs either....it's quite a joke around the office.
A 4.7% boost in profits is hardly an explosion. Wage growth measures the base line at an income of zero. Profit growth measures the base line at an income equal to expenses. So profit growth tend to be much more dynamic than wage growth; In recessions, workers don't get negative wages!
Further, 2.3% wage growth is NOT the slowest in 25 years... not by a long shot. The author must mean it's the slowest REALTIVE to inflation. But the inflation measure used is a lousy indicator of trends; it's artificially high because of fuel costs: The PRODUCER price index shot up 10% in the past year, the fastest ever. (You think maybe THAT'S where all the money for wages went?) The core inflation rate has barely budged.
Lastly, "wages" do not include benefits.
Next quarter, suppose the price of gas falls below $2 a gallon, as it expected. The PPI goes down several percent. The consumer inflation rate goes negative, also. And the wage index rises 1.9%. Do you think they'll be talking about the skyrocketing wages, RELATIVE TO INFLATION? No, they'll be saying wage growth is down again.
I readily part company with the Rush Limbaugh and even Alan Greenspan types, and frequently denounce business news reporting which treats wage growth as if it is deadly. But this article is garbage.
You hit it right on the head.
Wow, if those 65,000 workers (not all of whom are computer programmers) can make such a dent in our wages, we're in worse shape than I thought.
Middle class conservatives will not wake up until it is too late and find out their big brothers have led them down the primrose path.
Dubya's Chronicle clipping makes a big fuss about wages. Their idea is that it doesn't matter if Americans are the happiest and the wealthiest in the world --all is lost if salaries are down. They'd prefer to have us living in miserable squalor as long as we have a nice paycheck.
My personal definition of 'wealth' includes happiness, which IMHO is the real goal. From what I've seen, riches (like fame, popularity, health and power) seem to come about as the result of happiness --even though a lot of people vainly strive for the results in the belief it will bring about the cause. The truth is that happiness simply starts with a conscious decision to be happy, and the rest can follow.
Has it occured to you that savings come from a paycheck ? And that is why the savings rate is so critically low ?
So wealth OR happiness ? What kind of pollyana nonsense is that ?
It doesn't help that the Federal Reserve will cause a recession every time the market favors the wage earner.
4.7% inflation doesn't that seem high?
That's way too high for core inflation. They may be counting energy costs, which skew the numbers due to their volatility.
Absolutely right! Never ceases to amaze how some people can really get things turned bassackwards.
Add living off the rising home equity and the wages might be below 50%.
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You got that one right.
A good rule of thumb in remembering which inflation is core and which includes volatiles is to remember that if the President is Republican and core is going down, then it's the total inflation that makes the headline.
The reverse is true --pundits had to switch back and forth for a while in the '90s when they were trying to explain which one was the 'important' one.
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The bean counters like to say rising home value is only an increase of wealth and it really isn't income (!?). Of course, even without home equity, people's wages are not even 2/3 of total average personal income.
Then again, for people like you and me who live on the Planet Earth, any increase in wealth is income -- so IMHO what you posted was absolutely right.
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