[Mb-civic] NYTimes.com Article: Hourly Pay in U.S. Not Keeping Pace With Price Rises

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Hourly Pay in U.S. Not Keeping Pace With Price Rises

July 18, 2004
 By EDUARDO PORTER 



 

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 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 M. Zandi, chief economist at Economy.com, a
research firm, noted that households in the bottom half of
income distribution account for only one-third of consumer
spending. 

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 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 weak position 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 rising
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 was outraged that the hotels
negotiating a new contract with her union were 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 cannot flourish," Mr. Zandi
said. 

So far, spending has been 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 income 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 at 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, a 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." 



http://www.nytimes.com/2004/07/18/business/18WAGES.html?ex=1091173931&ei=1&en=1f29c7280ca99a49


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