Wages and living standards

July 28, 1995

The announcement yesterday of the merger of unions representing steel workers, machinists and auto workers should give these workers a stronger voice in a changing economy. They need it. The "anxious class" is what Labor Secretary Robert Reich calls the working middle class, worried not only about keeping their jobs in the wake of unending company downsizings but about the shrinking purchasing power of their paychecks.

Amid the boom in the stock market, fueled by record corporate profits and a controlled inflation rate, and the surge in productivity rates and booming exports, the American worker is not sharing in the benefits of the nation's economic recovery.

Although unemployment is low, and well over 5 million jobs have been added to the economy in the past two years, that has not translated into wage gains for workers.

A recent Labor Department survey shows that real (inflation-adjusted) compensation has actually declined over the past five years. Combined wages, salaries and benefits rose less than 3 percent in the year ended June 30, the lowest annual gain since that federal index began in 1981.

Four years into this economic recovery, hourly wages and benefits are growing at less than half the level of the previous four recovery periods since 1960. The wage slowdown is evident in consumption rates, a sluggish 1.6 percent a year since 1991 that matches the minimal 1.5 percent annual rise in per capita gross domestic product.

New technology and global competition are two explanations for this fragmentation of the working middle class. Deregulation and the loss of unionized manufacturing jobs are other reasons.

Companies flush with unequaled profits are slashing employment levels and payroll costs to gird themselves for tomorrow's competition, cutting real wages. Some speculate that the global environment is changing the U.S. from a consumer society to a producer society like Japan.

Meanwhile, economic growth is poking along at barely 2 percent a year, too slow to increase real income of American workers. Unless the working class wage squeeze is loosened, the result could be a downward economic spiral of consumers unable to buy and a deep slump in the economy. Prices of new autos, for example, have risen nearly twice as fast as the rise in average income over the past decade, and U.S. sales per capita have dropped.

Economic expansion, coupled with the demonstrated high productivity of recent years, would help to boost worker tTC compensation without the fear of unchecked inflation. Higher investment to increase jobs, rather than to cut them, can pay off for employers as well as employees. If not, the continuing stagnation of U.S. living standards may result in a swelling populist political rebellion.

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