From: Blunderov (squooker@mweb.co.za)
Date: Mon Oct 27 2003 - 05:58:01 MST
[Blunderov]
This seems germane. In particular
<extract>
Over all, workers at the very bottom of the income distribution are
among the only ones whose hourly wages have trailed inflation recently.
Congress has not raised the minimum wage since 1997, and its buying
power has been slowly eroded by inflation.
</extract>
Best Regards
<q>
Gains in Wages Expected to Give Economy a Lift
By DAVID LEONHARDT and EDMUND L. ANDREWS
Wage increases for employees at almost all income levels
are giving important and unexpected support to the nation's economy.
http://www.nytimes.com/2003/10/27/business/27WAGE.html?th
Gains in Wages Expected to Give Economy a Lift
By DAVID LEONHARDT and EDMUND L. ANDREWS
Published: October 27, 2003
Wage increases for employees at almost all income levels are giving
important and unexpected support to the nation's economy. If the gains
continue, they offer hope that the rapid economic expansion of recent
months could prove more durable than other spurts of growth over the
last two years.
Forecasters expect the Commerce Department to say in its quarterly
report on Thursday that the economy grew about 6 percent in the
three-month period ending in September, which would be the fastest pace
since 1999. Most of that growth stemmed from a sharp rise in consumer
spending, driven largely by a continuing boom in mortgage refinancing
and checks that were mailed out as part of the recent tax cut.
With those forces receding and business spending still slack, the
economy will depend increasingly on regular paychecks, analysts say.
Hourly wages have already surprised most economists by growing more
quickly than inflation since 2001 in spite of the worst decline in
employment in 20 years.
The wage gains have not been enough to overcome the economy's problems,
however. Many families still have less income than they did a year ago
because companies have reduced their workers' hours, and health care
costs have risen rapidly. But economists say that the wage raises have
provided a buffer, allowing consumer spending to continue rising every
quarter for the last 12 years, according to the Commerce Department.
The contradictory mix of high unemployment with fast growth and
resilient wages is part of the conundrum that the Federal Reserve will
face tomorrow, when its monetary policy committee meets to set interest
rates.
Fed officials have signaled that they will keep short-term rates at just
1 percent and repeat their cautious economic outlook because they remain
worried about the slow pace of job growth and the risk of a deflationary
price spiral.
According to an analysis of Labor Department data by the Economic Policy
Institute, a Washington research group, hourly wages have increased more
sharply than at any time since early 2002 - more than 2 percent, after
being adjusted for inflation - for a median of about $14 an hour.
Another government survey suggests that wage growth is falling but
remains above the annual inflation rate, which is roughly 2 percent.
Wage increases trailed inflation for long periods during the 1980's and
early 90's.
"What seems to be happening is that companies that are staying in
business want to hold onto the people they have," Stephen R. Sleigh,
director of strategic resources at the International Association of
Machinists and Aerospace Workers, which has negotiated annual pay
increases of more than 3 percent on most recent contracts. "It's a very
unusual labor market right now."
As companies have reacted to the increasing competition of a global
economy and figured out how they can use technology smartly, they have
become more efficient in recent years, ending decades of slow
productivity growth. This productivity surge has contributed to the lack
of hiring since 2001, because companies can make more goods without
adding new workers, but it has also left a larger amount of revenue to
be split between hourly wages and corporate profits.
"We all talk about the dark side of productivity growth," Richard
Berner, the chief United States economist at Morgan Stanley, said. "This
is the positive side. Companies couldn't afford to pay more if they
weren't getting more out of their workers."
With the help of the money from refinancing and the tax cut, retail
sales surged last month; Gap, Neiman Marcus, Nordstrom and other chains
reported some of their best results since last year.
The increase in wages "has been a hallmark of the last several years and
a cushion for the consumer," Mr. Berner said. "It's an important and
often overlooked aspect of what's going on."
Thursday's report on economic growth will offer clear political
advantages for the White House, adding legitimacy to its argument that
the recent tax cut has turned around the economy. But many economists,
including some at the Fed, caution that major parts of the current
growth spurt are unsustainable.
Laurence H. Meyer, an economist and a former Fed governor, estimates
that the combination of tax cuts and bigger government spending, mostly
for the military, essentially doubled the pace of economic growth in the
third quarter, to 6 percent from 3 percent. But Mr. Meyer said that that
effect is already wearing off and that the fiscal policy will actually
become a drag on growth by the end of next year.
Interest rates are also likely to rise as the economy recovers, as John
W. Snow, the Treasury secretary, pointed out in closely followed remarks
last week. That could cause a big decline in mortgage refinancing.
The best hope for a run of solid economic growth that lasts more than a
few months, which has not happened since the late 90's, lies in
corporate America, where many executives remain too circumspect to
invest significantly in new buildings, equipment or technology. Should
that change, employment could begin growing at a healthy rate again and
income and consumer spending could rise with it, creating a virtuous
cycle, economists say.
The economy added jobs in September for the first time since January,
but the new hiring was not strong enough to cause a drop in the
unemployment rate.
The key is "the whole hand-off from consumers to business," said Robert
V. DiClemente, chief United States economist at Citigroup. "The business
sector has to promote growth by restocking, hiring, advertising,
contributing to income growth," he said.
Most forecasters predict that the current recovery will take hold, even
if the gaudy growth of the third quarter does not last.
But Wall Street and government economists have repeatedly been too
optimistic over the last two years, and a few analysts remain concerned
that companies are still working off the excess of the late-90's bubble
in stock prices and technology spending.
If employment does not begin growing at a healthy pace soon, the wage
increases will probably not last, many economists say. Changes in pay
often lag other parts of the economy.
The recent wage increases appear to grow out of both the sharp recent
increases in the nation's productivity and the relative strength of the
labor market, compared with its condition in the aftermath of other
recessions.
With the jobless rate at 6.1 percent last month, compared with a peak of
almost 11 percent during the 80's, companies also have less bargaining
power than they had during other periods of slow economic growth. A
survey of employers by Watson Wyatt, a consulting firm, found that they
plan to pay average salary increases of 3.4 percent next year, up from
3.2 percent this year.
SAS, a software maker based in Cary, N.C., has reduced the amount of
money it pays to employees from its profit-sharing plan as business has
weakened in the last two years. But SAS has increased salaries 4 to 5
percent a year on average, with most of the raises going to the
employees whom executives fear losing the most, said Jeff Chambers, vice
president of human resources at the company, which employs 5,000 people
in this country.
"We've made money available to people who have the magic - the critical
performers in the critical roles," Mr. Chambers said.
Other significant pay increases this year have included raises of almost
10 percent for public school teachers and administrators in Washington
and raises of almost 30 percent for nurses, who are still in high demand
nationwide, at Tenet Healthcare.
But the picture is hardly uniform. Airline and steel workers have agreed
to pay cuts as their companies struggle to avoid or emerge from
bankruptcy. In August, President Bush announced that he was cutting the
raises of more than one million federal workers, to 2 percent from 2.7
percent, to help pay for military actions and to avoid the need for
other spending cuts.
Over all, workers at the very bottom of the income distribution are
among the only ones whose hourly wages have trailed inflation recently.
Congress has not raised the minimum wage since 1997, and its buying
power has been slowly eroded by inflation.
Workers in the middle have received somewhat larger increases than those
at the top, according to Jared Bernstein, an economist at the Economic
Policy Institute. Men's wages grew in the third quarter of 2003 for the
first time in a year, Mr. Bernstein said, based on his analysis of a
survey of households conducted by the Census Bureau.
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