More than three years into the economic recovery, U.S. workers' hourly wages continue to decline when adjusted for inflation with little...
CHICAGO — More than three years into the economic recovery, U.S. workers’ hourly wages continue to decline when adjusted for inflation with little hope of a dramatic turnaround anytime soon.
The long, lean times for salary increases have led some experts to wonder if a fundamental shift is under way even as productivity levels remain high and corporate profits continue to soar.
Beyond the temporary factors contributing to a sluggish recovery from the recession of 2001, some think that globalization, the movement of jobs offshore and the declining influence of trade unions could be putting pay envelopes on a permanent diet.
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Some companies have concluded that the past practice of increasing wages faster than inflation is no longer needed to keep employees from leaving.
It may never, in fact, be needed again.
Naturally, not many human-resource managers are trumpeting their commitment to holding the line.
But in a recent issue of Workforce Management, a leading trade journal for human-resources executives, the latest advice is plenty blunt:
“Annual pay increases designed for optimal hiring and retention are no longer needed,” the magazine declares. “If your salary-increase budget for 2005 is much higher than 3 percent, you’re probably overspending,” the article advised.
Even though real wages are falling for many workers, consumers continue digging deep into their pockets to keep the economy growing.
Consumer spending, which accounts for about two-thirds of all economic activity, has remained relatively high during the recovery while savings levels have declined.
Meanwhile, average growth in wages and salaries fell below 3 percent for the 12 months through September for U.S. sector employees, according to the U.S. Bureau of Labor Statistics.
Pay grew at 2.4 percent — the lowest increase on record, partly because soaring health-benefit expenses raised overall compensation costs for employers, some economists say.
Hourly wages for production and service workers — representing four-fifths of the nation’s work force — declined or remained flat year over year, when accounting for inflation, every month since May, according to the bureau’s reports.
“Real wages are falling for a lot of workers,” said economist Jared Bernstein of the Economic Policy Institute in Washington, D.C., which conducts economic research that focuses on low- and middle-income workers.
“It’s surprising and disheartening, three years into the recovery with strong productivity growth, we’re still looking at declining wages.”
Employees like Cheryl Ruthrauff are feeling the pinch.
An administrative assistant who earns in the mid-$50,000 range, the 48-year-old mother of two has put her town home in suburban Chicago on the market and plans to move into an apartment to cut expenses.
Her budget is strained by the cost of putting her youngest daughter through Northern Arizona University on a single parent’s salary.
Even without college costs, “it still probably would be tight,” she said. “To me, you’re not really receiving a raise because of inflation and the higher (health care) insurance.”
Her raises at a midsize manufacturing company averaged 2 percent to 3 percent in recent years compared with 7 percent to 8 percent during the 1990s.
“It’s a drastic difference,” she said. “You just live paycheck to paycheck. There’s always something.”
Thomas Foss, 51, chief technical officer at Mount Prospect National Bank, is typical of the skilled workers who were forced to take jobs at steep discounts during the recession to stay employed.
“You take a job for less with the hope that it works out later when you prove yourself in the position and demonstrate your contribution,” said the former Lucent project manager. “It’s driven by the market. People are doing that readily just to get in.”
Salary growth historically has averaged between 1 percent and 2 percent above inflation, and it hovered closer to 2 percent in the late 1990s, according to Mercer Human Resource Consulting’s surveys of employers.
“Now it’s closer to 1 percent,” said Steven Gross, leader of Mercer’s U.S. compensation consulting practice. “Until the basic supply and demand changes, I don’t see a lot of upward pressure for wages.”
At the same time, companies are paying more for employee health care, which boosts the costs of total compensation even while salaries lag.
“Compensation has been rising at a pretty rapid clip,” said Nariman Behravesh, chief economist for Waltham, Mass.-based research firm Global Insight. “That’s a trade-off a lot of companies have made.”
Economists predict wages will rise when hiring picks up.
Despite the fact that the economy is adding jobs, 1.2 million fewer people are employed than in March 2001, when the recession started. Meanwhile, the number of available workers has increased.
“Jobs growth and wage growth has been weaker than in other recoveries,” said Behravesh. “It’s another symptom of the unusual nature of this upturn.”