Real wages fall at fastest rate in 14 years

By Christopher Swann in Washington

Financial Times -- May 10, 2005

Real wages in the US are falling at their fastest rate in 14
years, according to data surveyed by the Financial Times.

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 labour 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.

Stagnant salaries push more families towards the breadline A
surfeit of workers and the threat of off- shoring are allowing
companies to call the shots on wages. '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

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

The Employment Cost Index, seen by some as the most reliable
measure, excludes overtime and professional partnerships.
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