Ho-hum, workers' wages are going up

The Economy

November 10, 1997|By Jay Hancock

"AMERICA needs a raise," AFL-CIO President John Sweeney told a crowd on Wall Street last year. He may get his wish.

The employment cost index, which tracks companies' labor expenses, rose by 3 percent last summer from the previous 12 months, according to an Oct. 28 government report.

Distracted by stocks, the country's capitalists paid it no mind. They were too busy worrying about the Dow Jones industrial average, which had tanked by 554 points the day before and then ricocheted 337 points back. Perhaps they should have paid more attention.

Until airy Asian economies caught its gaze, Wall Street was obsessed with employment costs. Fed Chairman Alan Greenspan kept mentioning the employment cost index as the distant early warning system of budding inflation, and ECI reports got credit for several big moves in the capital markets in the past year.

Now the biggest 12-month rise in worker compensation since 1994 shows up and nobody cares.

"Compensation costs are not accelerating," Lynn Reaser, chief economist of Barnett Banks told Bloomberg News after the index came out. "I don't see any inflation," said Thomas Carpenter, chief economist of ASB capital management in Washington. I don't see it in theory. I don't see it in fact."

On its cover, the worker-pay book doesn't look very scary for fat cats, who habitually fear that inflation will push up interest rates and hurt their stocks and bonds.

Worker compensation rose by 0.8 percent in the summer quarter, the same as in two of the three previous quarters. The 3 percent pop over 12 months was only slightly above the 2.7, 2.8 and 2.9 percent increases that have been booked every quarter for almost three years.

But the report's fine print contains compelling evidence that worker pay indeed is about to bloom. Don't look at total compensation in the ECI dispatch, which includes expenses for health insurance, pensions and other employee benefits.

Look at wages and salaries only. They're staging a healthy advance.

Wages for all civilian U.S. workers rose by 3.5 percent between summer 1996 and summer 1997. That's almost 2 percentage points above the consumer inflation rate, which is on track to sink to 1.8 percent this year.

And it's the biggest 12-month wage jump since 1991.

Why isn't Wall Street worried? Thanks to the stranglehold of health maintenance organizations on medical costs, employee-benefits expenses rose by only 1.9 percent in the same period.

That dulled the pain for payroll departments. And it obscured the steady march of the wages, which advanced by 2.8 percent in 1994, 2.9 percent in 1995 and 3.3 percent last year.

For years now, economists have believed that low unemployment would spur inflation, that companies would bid more for increasingly scarce workers and then build the extra costs into their prices.

It hasn't happened yet, despite national unemployment's dive below 6 percent for more than three years now. Many policy makers argue that the tie between low unemployment and higher wages has been loosened, if not broken.

The latest employee-pay statistics suggest that it was just delayed.

Look at the country by region. The places with the tightest labor markets are also the ones with the yeastiest wages.

In the Northeast, which has muddled along economically all decade, wages rose by only 2.9 percent for the 12 months ended in September. In the Midwest, by contrast, they hopped 4.2 percent. In the West: 3.5 percent. In the South: 3.7 percent.

And workers aren't becoming more plentiful. Anywhere.

In Maryland, 59 percent of the companies recently surveyed by the University of Baltimore said they couldn't hire the people they needed. The nation's unemployment rate fell to 4.7 percent in October, the government said Friday, its lowest point since 1973.

U.S. wages showed "a significant break" upward in the summer quarter, said Paul Ferley, an economist with the Bank of Montreal who perhaps hasn't been so distracted by American stock shenanigans. Inflation in the ECI's wage component, he said, "does provide evidence that labor markets are starting to exert upward pressure on costs."

Pub Date: 11/10/97

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