Wages stall despite growth

For many, pay in '03 same as in '01, study finds

Meantime, company profits soared

Workers got little reward for gains in productivity

May 19, 2004|By Ameet Sachdev | Ameet Sachdev,CHICAGO TRIBUNE

Despite an expanding economy and improved productivity in recent years, American workers are experiencing sluggish growth in wages.

Adjusted for inflation, many workers essentially took home the same pay last year that they did in 2001. Some wage increases aren't keeping up with inflation.

This is an unusual period in American history.

Labor's share of the increase in national income since November 2001, the end of the most recent recession, is the lowest for any recovery since the end of World War II.

That's the finding of a new study from the Center for Labor Market Studies at Northeastern University in Boston.

"Almost none of the productivity gains ended up in wages and salaries," said Andrew M. Sum, the center's director and lead author of the study. "Combine that with the fact that firms didn't add new workers to their payrolls, and that's what made this recovery so unique."

Sum and his researchers studied the aftermath of all nine recessions going back to 1950 and analyzed the distribution of national income, a measure of the economy similar to the gross domestic product.

From the start of 2002 to the end of last year, national income grew about $804 billion, or 8.7 percent. For the first time, corporate profits received a larger share of the growth than labor did.

In the first two years of past recoveries, labor received 54.5 percent to 66.5 percent of the increase.

This time, employees got 38.6 percent. Typically, corporate profits account for 15 percent to 18 percent of national income growth. This time, corporate profits' share more than doubled, to 40.5 percent.

The reasons for labor's poor showing are not hard to spot.

Employment has shrunk by 1.6 million jobs since the recession's start in March 2001. About one-quarter of those jobs were lost in the two years since the end of the recession.

Outsourcing, particularly the shifting of work to China and India, is one reason that hiring at home has been sparse. Companies are more focused on lowering costs to boost profits and recover ground lost in the stock market plunge that started in 2000.

When demand dictates adding workers, companies increasingly are turning to temporary workers and their close relatives, contract workers. Temporary workers are the fastest-growing segment of the work force, according to the Bureau of Labor Statistics.

Companies also are extracting more work from workers.

Productivity rose 4.4 percent last year, but workers are not sharing much in the benefits of that improved productivity.

Adjusted for inflation, average hourly wages for nonfarm workers, excluding managers and executives, rose 25 cents, to $15.35, from 2001 to 2003. That equates to an annual increase of less than 2 percent, or below the rate of inflation.

"Corporate profits, however, were able to experience explosive growth as a consequence of the very large gap between the growth rates of labor productivity and worker earnings," Sum wrote in the study.

The slack labor market has hurt those who held on to their jobs and the jobless, said Jared Bernstein, an economist with the Economic Policy Institute in Washington.

"What we learned in the '90s is if you want the benefits of economic growth to be broadly shared, you need a tight labor market," he said. "In the absence of a tight labor market, many workers lack the bargaining power they need to claim their piece of the pie."

Among full-time wage and salary workers, the news is worse. Median weekly earnings, adjusted for inflation, were $620 last year, the same as they were two years earlier, according to federal labor statistics.

Consultants Hewitt Associates found that the average salary increase last year for employees exempt from overtime was 3.3 percent, the lowest in the consulting firm's 27 years of collecting such data.

Meanwhile, the median cash compensation for chief executives was up more than 7 percent, and that's not including stock options and other long-term incentives, according to Mercer Human Resource Consulting.

The Chicago Tribune is a Tribune Publishing newspaper.

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