For the first time in 14 years, the American work force has in effect gotten an across-the-board pay cut. The growth in wages in 2004 and...
For the first time in 14 years, the American work force has in effect gotten an across-the-board pay cut.
The growth in wages in 2004 and the first two months of this year trailed the growth in prices, compounding the squeeze from higher housing, energy and other costs.
The result is that people such as Victor Romero are finding themselves falling behind.
The 49-year-old film-set laborer had to ditch his $1,100-a-month Los Angeles apartment because his rent kept rising while his pay of $24.50 an hour stayed flat.
“There’s no such thing as raises anymore,” Romero said.
This is the first time that salaries have increased more slowly than inflation since the 1990-91 recession. While salary growth has been relatively sluggish since the 2001 downturn, inflation had stayed relatively subdued until last year, when the consumer price index rose 2.7 percent. But average hourly wages rose only 2.5 percent.
The effective 0.2-percentage-point erosion in workers’ living standards occurred while the economy expanded at a healthy 4 percent, better than the 3 percent historical average.
At the same time, corporate profits hit record highs as companies got more productivity out of workers while keeping pay raises down.
Some see climbing profits and stagnant wages as not only unfair but ultimately unsustainable. “Those that are baking the larger pie ought to see their slices expanding,” said Jared Bernstein, an economist with the liberal Economic Policy Institute in Washington.
On the other hand, higher wages could hurt the economy by stoking inflation. Employers might pass the costs on to consumers in higher prices, and that in turn might prompt the Federal Reserve to raise interest rates even more aggressively, possibly slowing the recovery or even triggering a recession.
For now, workers’ wallets are being pummeled by something of a perfect storm of economic forces: a weak job market, rising health-insurance premiums and inflationary pressures.
The biggest factor is the slack employment market, which means there is little pressure on businesses to boost pay.
“They take advantage of you because there’s no work and anyone will work for anything,” Romero said.
The squeeze is especially intense on the 47 percent of the work force whose employers don’t directly provide their health insurance. For lower-income workers, who are more likely to be uninsured, the falling value of their wages is even more serious, because they’re more likely to live paycheck to paycheck. And rising food and energy prices take a higher toll on the poor than on the rich.
Historically, periods when wage growth is outpaced by inflation rarely last more than 18 months.
Many economists figure it’s only a matter of time until workers can pry more money out of their employers to catch up to inflation again. If economic growth remains robust, as many forecasters predict, workers may gain greater leverage to negotiate wage increases.