Lid on wages nice for boss but hard for worker Labor cost index posts 2.9% increase, smallest rise in years

Layoffs help, of course

Some say report is further evidence of a groggy economy

February 14, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

Government data offered new evidence yesterday that worker pay is staying nearly flat even as corporate profits and the stock market head in the general direction of Jupiter.

The employment cost index -- a measure of what U.S. companies pay in wages, salaries and benefits -- rose by 2.9 percent in 1995.

It was the smallest calendar-year gain since the Labor Department started measuring worker costs in 1982. The index rose by 3.0 percent in 1994.

The result doesn't account for price inflation, which, at 2.5 percent last year, wiped out most of the gain.

Like the blind men's elephant, yesterday's report feels different according to where you stand in the economy:

* For workers, it confirms another year in which pay barely kept up with inflation, despite a fourth-quarter blip in the value of employee benefits.

* For corporations, it suggests that labor costs are well under control and pose little threat to booming profits.

* For consumers, it means tame inflation. Companies whose payroll costs aren't rising much won't have to raise prices.

* Borrowers should take comfort for the same reason. With inflation under thumb, lenders won't have to crank up interest rates to compensate for devalued money.

Competition for jobs from overseas workers and stricter control of health-care spending have both helped to press down U.S. employment costs.

But yesterday's record low was also assisted by continuing corporate layoffs, and it paints a vivid picture of a slow economy, economists said.

"It really means that our soft landing came close to being a recession last year," said Michael Conte, director of the Regional Economic Studies Program at the University of Baltimore. "It means we had a major stall. The economic engine sputtered, but fortunately it didn't die out."

In 1995's last quarter, total compensation costs increased by 0.9 percent, up from 0.6 percent in the third quarter and up from 0.7 in 1994's fourth quarter. Many analysts had expected a 0.7 percent increase for the latest quarter and blamed the difference on a pop in health-care costs.

Employee-benefit costs, including health care, rose by 1.3 percent in the fourth quarter, the fastest increase since the first quarter of 1993. But many analysts believe it was temporary.

Economists cautioned against taking the new data at absolute face value. Meager though they were, the employment-spending gains announced yesterday don't account for the extra hours many people have been spending at work. Measured per-hour, last year's pay increase may have been even less.

Using yesterday's data, "what we do know is how much employers pay," said Charles McMillion, president of MBG Information Services, a Washington economics consultancy. "What we don't know is how many hours people are actually working."

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