Everything is going up, except salaries of middle-class voters

July 14, 2004|By JAY HANCOCK

YOU'RE not crazy. I checked with the government. Everything really is going up - gas prices, corporate profits, soda pop prices, gross domestic product, medical prices, household debt, milk prices, Barry Bonds' self-esteem - except your salary.

Bad job growth wasn't the only thing weird about this economic recovery. The drag was double.

It was unusual enough that employers churned out more and more products the last two years without hiring extra help. But they also withheld raises from the workers they already had.

We're fixing the first problem. The economy added 1.3 million jobs in 2004's first half. But the wage and salary graph still looks like Interstate 70 leaving Denver and heading toward Topeka.

"Five out of the last six months the real hourly wage has declined, and probably six out of the last seven months," says Jared Bernstein, senior economist at the Economic Policy Institute in Washington. "The pie is getting larger" in the economy. "But where are the slices going?"

Not into wage and salary increases, so far.

Pay no attention to reports that show worker compensation rising at a healthy pace. That's caused mainly by the increasing expense of health insurance, which, as an employee benefit for many workers, is counted as part of total pay.

But more expensive health care doesn't put money in your pocket, unless you're a doctor referring patients to his own MRI clinic. Often it removes money from your pocket if an employer increases your deductibles and premium contributions.

What you see in your paycheck is the wage and salary part of compensation, and that's gone nowhere.

This has happened before. Wages have taken a breather at various times in the country's history, especially when held up against inflation, or overall rising prices.

What's bizarre now is that wages and salaries are stagnant even as the overall economy goes great guns. In the past two years, economic output has grown faster than at any time since the late 1990s, and normally such acceleration has boosted demand for workers and driven up take-home pay.

But not now. If you account for inflation, hourly wages and salaries are more than 1 percent lower than they were late last year.

And pay isn't doing well even in face-value terms. It's up 2 percent over the past year. Treat yourself to a round of miniature golf.

(Even though we talk about "hourly" wages, we're referring to most nonsupervisory employees, about 80 percent of U.S. workers - not just people who punch a timecard.)

"We believe there's more slack than there appears to be in the labor market," says Scott Hoyt, an analyst with Economy.com in West Chester, Pa. "Wage growth is still a drag on overall personal income growth."

How come? One factor is that, for various reasons, Hoyt believes, the official unemployment rate of 5.6 percent understates the number of people who want work but can't find it. With relatively more workers available, employers don't have to bid so high for their services.

But why are there so many idle workers in the first place? Why haven't companies hired at a pace to match their growing revenue?

The answer, of course, is productivity, the major U.S. economic story of the past decade. Thanks to computers, robots, division of labor and, yes, layoffs and downsizing, the United States is churning out many more products and services per worker than it once did.

In the long run, productivity is a wonderful thing; it boosts employee pay, corporate profits, public health and other key standards.

But so far, in this cycle, it has mainly boosted corporate profits. Almost all of the gains of productivity have gone to shareholders; hardly any have gone to workers.

Economists expect wages and salaries to start perking up - but they were expecting that a year ago, too.

"I think they'll come back. I think they're coming back now," says Mark Vitner, an economist with Wachovia Corp., in Charlotte, N.C., who probably made clients some money by being more bullish on the economy this year than most of his peers. "The quality of jobs being added actually doesn't look that bad."

But the longer employee-pay increases delay their overdue entrance, the louder presidential hopeful John Kerry's message about the "abandoned" middle class will sound this fall.

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