Reuters
US recovery neglects working class wages-analysts
Wednesday January 28, 3:30 pm ET
By Kevin Plumberg
NEW YORK, Jan 28 (Reuters) - The U.S. economic rebound has so far comforted homeowners and stock investors, but has done little for working class paychecks, economists say.
A stalled job market is making any wage growth difficult for the average consumer, whose spending makes up two-thirds of overall economic activity in the United States.
Mid- to low-income workers who, unlike white collar workers, rarely get perks on top of their salaries like year- end bonuses and stock options, will likely be affected the most by the slow growth of wages.
"Certainly if you're at the low end of the wage scale, you'll be asking yourself, where's the recovery, because you wouldn't have shared in it," said Nigel Gault, director of U.S. economic research at Waltham, Massachusetts-based Global Insight, a private company.
One of the main reasons for slow wage growth is the productivity gains that have enabled companies to do more with fewer workers, Gault said. From the third quarter of 2001, when the most recent recession ended, to the third quarter of last year, real wages grew 1.4 percent. By contrast, over the same eight quarters, workplace productivity increased 9.2 percent, said Gault.
Managers and executives feel little pressure to expand their work force or push wages up, as they use technology and hire less expensive labor to cut down on costs.
Marc Levinson, vice-president and economist at J.P. Morgan, said in a recent report that many people who earn more than $50,000 in annual gross wages benefited in the last year from rock-bottom mortgage rates and a late 2003 stock market rally that has propelled the Dow Industrial Average nearly 10 percent since November.
CAN'T PUMP GAS FAST ENOUGH
But gasoline station attendants and fast food workers saw no changes in their average weekly pay, compared with a year ago. The average weekly pay for office-supply store clerks and textile industry workers actually declined, the report said.
"The economic upturn is not benefiting households uniformly across the income spectrum," said Levinson.
Low-wage earners receive a lower percentage of their pay in the form of stock options, bonuses or cash incentives, said Bill Coleman, senior vice-president of compensation at Salary.com, a consulting firm in Wellesley, Massachusetts.
Dependency on wages shielded workers during the downturn, as corporate profits suffered. But now that the economy is showing signs of recovery, wages are pretty much frozen and many businesses may be more likely to dole out bonuses than to give out pay raises, he said.
U.S. companies are generally keeping their salary budget increases in line with the 3.5 percent rise in 2003, according to the non-profit group World at Work.
That rate would be down 0.2 percent from forecasts for 2004 salary budget hikes that businesses had made in April 2003, suggesting that signs of economic strength since then have not comforted corporate treasurers.
Economists generally agree that once payrolls expand consistently, wage growth will follow. But for all that to happen businesses have to be confident in the economy.
"The only thing that's going to help (low-wage earners) is an improvement in the labor market conditions for less skilled workers," said J.P. Morgan's Levinson. "It may be coming, but it just isn't here, yet."