[OPE-L] Falling Fortunes of the Wage Earner

From: glevy@PRATT.EDU
Date: Tue Apr 12 2005 - 10:23:00 EDT

---------------------------- Original Message ----------------------------
Subject: Falling Fortunes of the Wage Earner
From:    "gerald_levy1973" <Gerald_A_Levy@msn.com>
Date:    Tue, April 12, 2005 10:20 am
To:      glevy@pratt.edu

via Joe Smith on Globolist.
NY Times, April 12, 2005
Falling Fortunes of the Wage Earner

  Beginning in the mid-1990's, pay increases for most workers slowly
but steadily outpaced the rate of inflation, improving the living
standards for nearly all Americans. But an unexpected reversal last year
in  those gains has set off a vigorous debate among economists over
whether the  decline is just a temporary dip or portends a deeper shift
that may  cause the pay of average Americans to lag for years to come.

Even though the economy added 2.2 million jobs in 2004 and produced
strong growth in corporate profits, wages for the average worker fell  for
the year, after adjusting for inflation - the first such drop in  nearly a

"Pay increases are not rebounding, even though the factors normally
associated with higher pay have rebounded," said Peter LeBlanc of  Sibson
Consulting, a division of Segal, a human resources consulting  firm.

The problem is not with the jobs themselves. Most economists dismiss  as
overblown the widespread fear that the number of jobs will shrink in  the
United States because of foreign competition from China, India  and
other developing nations. But at the same time many of these
economists argue that the increasing exposure of the American economy
to globalization, along with other forces - including soaring health
insurance costs that leave less money for raises - is putting
pressure on wages that could leave millions of workers worse off.

"We're in for a long period where inflation-adjusted wages will be  under
acute pressure," said Stephen S. Roach of  Morgan Stanley.
"That's a most unusual development in a period of high productivity
growth. Normally, real wages track productivity."
The most commonly used yardstick of wages - the Bureau of Labor
Statistics' measure of nonsupervisory private-sector workers,
covering 80 percent of the labor force - fell 0.5 percent last year,
after  inflation. Real wages for these workers are now lower, on average,
than two years ago. A broader measure, the employment cost index, which
includes supervisors, managers and most government workers, dropped  0.9

At a Sprint call center in North Carolina, 180 customer service
representatives are well aware of how such forces are squeezing them.
Their jobs have not migrated overseas, but the employees just
concluded their most bruising battle ever over wages.

The Sprint workers in Fayetteville emerged from negotiations that  lasted
months with a contract that left them with a pay freeze for  last
year and no definite increase for 2005. While the best performers are
promised 2 percent merit raises, even those are likely to lag

"It's like their wages are in a severe coma," said Rocky Barnes,
president of the union local. "Sprint said they had to restrain wages
because the company's performance wasn't so good, but we think a lot  of
it has to do with offshoring."

Sandra J. Price, a Sprint vice president, took issue with union
leaders. She said Sprint sought the freeze not because of low-wage
competition overseas, but because benefit costs were soaring and the
company felt the call center's compensation was generous for the area.

Whatever the explanation for Sprint's action, many economists,
liberal and conservative, are perplexed by two unusual trends. Wage
growth  has trailed far behind productivity growth over the last four
years, and  the share of national income going to employee compensation
is low by  historic standards.

Mr. Roach of Morgan Stanley said wages were being held down by
foreign competition; corporations that are moving jobs offshore; the
uncertainty of businesses over demand; and management's ability to
substitute computers and other devices to replace workers.

  "These factors aren't going to go away," he said. "The competitive
pressures for companies to hold the line on labor costs are intense,  and
the alternatives they have - technological substitution and
offshoring labor - are growing."

The overall wage figures hide a split, with an elite group getting
relatively large gains. In a study of census data, the Economic
Policy Institute, a liberal research group, found that for the bottom 95
percent of workers, after-inflation wages were flat or down in 2004,  but
for the top 5 percent, wages rose by an average of 1 percent,  with
some gaining much more.

The upper-income group enjoyed strong pay increases largely because  of
bonuses, stock options and other inducements and because of robust  demand
in certain fields, like law and investment banking.

  J. Bradford DeLong, an economist at the University of California,
Berkeley, said that current wage patterns, while perhaps only
temporary, did not conform to traditional economic explanations.

"You'd think that with the unemployment rate near 5 percent and
productivity growth so strong, employers would be anxious to raise
payrolls and would have plenty of headroom to raise wages," he said.  "But
they're not."

Since 2001, when the recovery began, productivity growth has averaged  4.1
percent a year; overall compensation - wages and benefits - has  risen
about one-third as fast, by 1.5 percent a year on average. By  contrast,
over the previous seven business cycles, productivity rose  by
2.5 percent a year on average while compensation rose roughly
three-fourths as fast, by 1.8 percent a year.

  "The question is not whether corporations are seeking higher
profits; bthe question is how come they're getting them to such a
degree at the  expense of compensation," said Jared Bernstein, an
economist with the  Economic Policy Institute. "I'm struck at how
successful they've been  at restraining labor costs."

Labor unions' declining bargaining power has given corporations a
stronger hand to hold down wages, he argued, but more recent trends,
including the emergence of  Wal-Mart Stores as a central force in the
economy, now play crucial roles, too.

Laurie Piazza, a  Safeway cashier in Santa Clara, Calif., said she
reluctantly voted to approve a pay freeze in the first two years of  her
union's three-year contract because Safeway insisted that it needed  to
hold down costs to compete with Wal-Mart. Her take-home pay will fall  $20
a week because the contract reduces the premium for working on  Sundays to
33 percent of regular pay, from 50 percent.

  "We tried to get weekly pay increases, but the company wouldn't do
it," said Ms. Piazza, who earns $19 an hour after 18 years on the  job.
"I think Wal-Mart has a lot to do with this. They're setting the

  With Wal-Mart moving aggressively into California with
supercenters,  Safeway officials say they need to clamp down on what they
consider  high labor costs to meet the challenge.

Last year's double-digit rise in health costs helped squeeze wages as
well; many companies also required employees to cover more of the
premiums out of their own pay.
While agreeing that these factors are important, Richard B. Freeman,  a
Harvard economist, predicted that new competition in the form of
millions of skilled Chinese, Indian and other Asian workers entering  the
global labor market will increasingly pull down American wages.

  "Globalization is going to make it harder for American workers to
have the wage increases and the benefits that we might have expected," he

  Facing intense foreign competition,  Delphi, the auto parts
manufacturer, has decided against any merit raises this year for its
salaried workers. And at its air bag and door panel factory in
Vandalia, Ohio, it persuaded unionized workers to accept a three-year  pay
freeze, warning that the plant would be closed otherwise.

  "The majority of workers felt they had to agree to this," said Earl
Shepard of the United Steelworkers local in Vandalia. "People here  say
the big problem is competition from Asia."

  Lindsey C. Williams, a Delphi spokesman, said the company was
to keep the Vandalia factory "viable" and was working with the union.

  Many economists say the nation may be returning to a period like
1973 to 1996, when inflation-adjusted wages stagnated or rose glacially.
That era was a reversal from the golden years of 1947 to 1973, when  wages
marched steadily upward.

 From 1996 to 2001, wages grew strongly again because of an unusually
low jobless rate, caused in part by the high-technology boom. In the  late
1990's, the tight labor market pressured companies to give
sizable raises to attract and retain workers even as a surge in
productivity  helped business afford them without substantially cutting
into profits.

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