Tuesday, May 10, 2005


Falling wages

The Financial Times reports that real wages (when viewed against inflation) have suffered the sharpest decline since 1991—
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.

For a little more perspective on how you're working harder for less, Christopher Swann writes

In the past economic cycle, companies have been extremely successful at capturing the lion's share of the gain from productivity improvements. Since 2001 productivity has been rising at an annual average of 4.1 per cent, while compensation growth has averaged just 1.5 per cent, leaving workers with just over a third of the benefit from rising efficiencies.

In the previous seven business cycles, by contrast, workers reaped about 75 per cent of the benefit of increasing efficiencies. “Businesses have clearly managed to gain the upper hand,” says Lawrence Mishel, president of the Economic Policy Institute, a Washington think-tank.

For most middle- and upper-income families, disappointing wage growth has been more than offset by bumper gains in property values, which have increasingly been unlocked for spending.

Meanwhile, advocacy groups believe stagnating wages are starting to have a visible effect on low earners.

“We have been noticing that low earners are increasingly having to fall back on services intended for the unemployed,” says Marc Cohan, a director of the Welfare Law Center. “Even some full-time workers in light construction or factory work are finding themselves using food stamps and soup kitchens.”

Isn't it time for the U.S. to abolish slavery? A rise in the minimum wage would be a start.

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