Wage increases may beat inflation

Your Money

December 31, 2006|By Molly Selvin | Molly Selvin,Los Angeles Times

Workers hoping that their wage increases will beat inflation should find some cheer next year.

Employees are expected to see their paychecks grow by an average of 3.5 percent in 2007, according to projections by several compensation surveys.

That should beat expected inflation of 2 percent to 3 percent, continuing a shift that began in recent months as the labor market has tightened and energy costs have fallen. Wage increases had generally lagged behind inflation since the 2001 recession.

A salary bump of less than 4 percent does not look generous, said Charles Peck, a compensation expert for the Conference Board, a New York business research organization.

"But when you look at it against inflation that's running under 3 percent, people are coming out ahead," Peck said.

In recent months, the rate of year-over-year inflation has slowed, from about 4 percent during the summer to 2 percent in the fall, according to federal data. That deceleration translates into real earnings growth, economists say.

Raises are being limited by rising costs for health insurance and other employee benefits, experts said. Also, employers say global competition has forced them to hold down raises to stay profitable.

Premiums for employer-sponsored health coverage rose 7.7 percent this year, according to the Henry J. Kaiser Family Foundation. Although that figure represents the slowest premium rate increase since 2000, "working people don't feel like they are getting any relief at all because their premiums have been rising so much faster than their paychecks," foundation President Drew E. Altman said.

Richard Greer, spokesman for the Laborers' International Union of North America, which represents 700,000 construction workers, said, "It's been a major struggle around the country to keep up with the cost of health care."

A trend toward rewarding top performers with incentives or bonuses also may account for the modest wage projections, as employers redirect money that could be used for raises to these one-time incentive payments, said Peck.

The projected 3.5 percent average wage increase is based on surveys of employers by the Conference Board and business consulting firms, including Hewitt Associates and Sibson Consulting.

Wage increases in recent years have come in lower than the projections. Surveys for last year showed expectations that raises would average 3 percent. But average wages rose 2.6 percent, according to the Bureau of Labor Statistics.

The projected 3.5 percent average for next year is simply that. Some workers will earn more.

New corporate disclosure rules adopted by the Securities and Exchange Commission, in effect this month, could fan worker resentment over how much their top bosses are making.

Molly Selvin writes for the Los Angeles Times.

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