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."
"Our customers simply don't have the money to buy basic necessities between paychecks," he said in a speech to executives.
But a good portion of Americans are insulated from sluggish wages because they benefit from other income sources.
In the aggregate level, only 56 percent of all personal income comes from wages and salaries, with the rest flowing from other sources, such as investments, rent, Social Security and private retirement plans.
This partly explains why consumers have kept on spending: Personal consumption expenditures were up 3.9 percent in the last 12 months.
"A heck of a lot of people don't feel squeezed because they're going out and buying Coach bags and they're shopping at Nordstroms," Silvia said.
And in any case, if history is a guide, a rise in pay should be just around the corner, economists said.
"Wages are going to catch up," Hassett said. "They've always picked up in the past."
jessica.holzer@chron.com
Supply and demand. Tough luck workers.
Well, long ago I figured out that one depends on the others for the raises, bonuses, [and the paycheck, too]. They may give, or they may withhold. OTOH, if one saves and invests what one could, pretty soon there would be investment income stream which could be seen as a raise and a bonus one gives to oneself, without having to beg for it. If there is enough of it one could even do without a paycheck at all.
Wow, that sounds rather Socialist......
Because business is booming and corporate profits are up sharply, economists are having a tough time making sense of the sluggish wage growth.
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http://www.freerepublic.com/focus/f-news/1511555/posts
"On average, applications for H-1B workers in computer occupations were for wages $13,000 less than Americans in the same occupation..."
It was tongue in cheek for the ones that no matter the problem, they cry supply and demand. I was just trying to get in ahead of them.
There's always the trade off between a guaranteed pay check versus having skills that allow you to be self-employed.
Face it folks, we live in a global economy. Our standard of living is higher than most other countries and we consume like no one else. What passes for poor in this country is considered middle class or rich in other countries. We demand more and more for our dollars and we certainly like the idea of our 401K growing in value. What are companies supposed to do but keep costs down?
Somehow left off the rest of my post.
Point is, supply and demand doesn't work when the demand can be met with a supply of lower wage earners.
On surface this stat appears to show benefit for American worker because his job pays $!3,000 more than the H1B visa worker, when in effect it artifically stagnates wages of the American worker by bringing in lower cost workers from out of the country, thus increasing the supply.
ping
Hang in there. The turnaround is coming very soon. Already, employers are reporting shortages in certain fields, especially for highly skilled workers.
I have been retired for long time. I hate to see Americans having to compete with foreign labor IMPORTED into our own country. Overseas is one thing but to bring them here to compete is quite another.
Well, self-employment is not for everyone. And paycheck is not guaranteed either, at least when one is not a tenured professor or a government bureaucrat. Saving/investment route has much lower entry barriers.
employers reporting shortages for high skill labor ? thats an incomplete statement. a more accurate way of writing this would be: employers reporting shortages for high skill labor wanting to work for pennies.
theres no shortage if you just pay enough !
as for wage stagnation, a sizeable amount of legal and illegal immigration will ensure wages for the lower skilled labor will NOT rise no matter what.
the liberals just don't get it, do they ? one hand they want increased immigration and the other they want higher wages. haha. so screwed up
Supply and demand
This is why illegal immigration is not only tolerated, it is encouraged.
Of course tax inceases have nothing to do with the decrease in income. [/sarcasm]
In some fields excessive skills may be somewhat of a hindrance nowadays. While many PhDs are wishing they never learned the words "regrettably, you appear to be overqualified; we wish you all the success in your future career endeavors" there still are openings at BS/MS levels - at least it is true in my field.
"OTOH, if one saves and invests what one could, pretty soon there would be investment income stream which could be seen as a raise and a bonus one gives to oneself, without having to beg for it. If there is enough of it one could even do without a paycheck at all."
I like your thinking! I work for myself. I earn an awesome salary, but I have a real a-hole for a boss some days, LOL!
I'm a big fan of "multiple streams of income." I firmly believe that we each have skills and talents that we can exploit for monetary gain. ;)
You win the prize as the smartest poster on this thread! This article is a typical loony bush-basher hit-piece. The Cron is always hot to trot on finding bad news and one of their favorite after dinner whines is finding some wage stat that shows a drop. They just loooove to hold it up as 'proof' that Americans are all going broke.
The fact is that family wealth and personal income are at all time highs and it just doesn't matter if the Chron is able to find some wages actually went down. Reality is (like you pointed out) that more and more Americans are getting rich on other incomes.
Dang Diana, you beat me to it again.
That's OK, I've always been partial to fast women.
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