US real wages fall at fastest
rate in 14 years
By Christopher Swann in Washington
Published: May 10 2005 17:59
Last updated: May 11 2005 15:20
Real wages in the US are falling at their fastest rate in 14
years, according to data surveyed by the Financial Times by the
Economic Policy Institute.
Inflation rose 3.1 per cent in the year to March but salaries
climbed just 2.4 per cent, according to the Employment Cost
Index. In the final three months of 2004, real wages fell by 0.9
per cent.
The last time salaries fell this steeply was at the start of
1991, when real wages declined by 1.1 per cent.
Stingy pay rises mean many Americans will have to work longer
hours to keep up with the cost of living, and they could
ultimately undermine consumer spending and economic growth.
Many economists believe that in spite of the unexpectedly
large rise in job creation of 274,000 in April, the uneven
revival in the labor market since the 2001 recession has made it
hard for workers to negotiate real improvements in living
standards.
Even after last month's bumper gain in employment, there are
22,000 fewer private sector jobs than when the recession began in
March 2001, a 0.02 per cent fall. At the same point in the
recovery from the recession of the early 1990s, private sector
employment was up 4.7 per cent.
"There is still little evidence that workers are gaining
much traction in their negotiations,' said Paul Ashworth,
US analyst at Capital Economics, the consultancy. "If this
does not pick up, it raises the prospect of a sharper slowdown in
consumer spending than we have been expecting.'
Economists are divided over the best source for measuring pay
increases in the US, since the government releases three main
measures. A gauge of average hourly earnings is released with the
employment report. This rose by 0.3 per cent in both March and
April and 0.1 per cent in February. Even with a slight rise in
the hours employees are working, from 33.7 to 33.9, this suggests
wages are struggling to keep pace with inflation. The gauge
covers non-supervisory workers, about 80 per cent of the
workforce.
The Bureau of Economic Analysis figures for personal income
showed wages rising at close to 6 per cent in 2004 but slowing
down since. This measure also showed wages rising by just 0.3 per
cent in each of the past 2 months. This is a broader gauge and
includes small businesses and professional partnerships, but it
measures total corporate wage bill rather than wages per
person.
The Employment Cost Index, seen by some as the most reliable
measure, excludes overtime and professional partnerships.
© Copyright The Financial Times Ltd 2005.
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