Are Workers' Wages and Salaries Stagnating?

Macroblog writes:

Are Workers Losing Ground? : Steve Reardon thinks so: "This is another problem for the Bush Administration. Since the start of 2005 the real wage rate has been declining and in the last two months the real wage has dipped below its November 2001 level. In other words, the real wage (the hourly wage put out by the BLS adjusted for inflation) is lower now than it was 4 years ago."...

[But] very president since Gerald Ford ends up looking pretty bad, the exception being the Clinton administration -- but only during the second term. (In the first four years of the Clinton administration, real average weekly earnings rose by about 4 cents. In the first four years of the current administration, they increased by about 17 cents.)

What's going on here? I'd argue the problem is that hourly wages or earnings are an inadequate measure of labor compensation, primarily because they exclude nonwage forms of compensation -- health care benefits, employers' share of social security contributions, and the like. These forms of compensation are an increasingly important part of what workers receive from employers in exchange for the sweat of their brows...

Two points: First, from 1973-1995 the rate of productivity growth in the American economy was very low--roughly 1% per year--and so we would expect real wage growth to be low. Since 2000 the rate of productivity growth has been 3.5% per year--and we would expect real wage growth to be much higher. It hasn't.

Second, as best we can tell (and we can't tell very well) the distribution of benefits is much more unequal than the distribution of wages. The rate of growth of average compensation is probably doing much better than the rate of growth of average wages and salaries; the rate of growth of median compensation is probably about on a par with the rate of growth of median wages and salaries.

There is reason to be worried about this apparent stagnation of real wages since the last business cycle peak.

Comments

[save_the_rustbelt]

Perhaps the mad policy of "more trade at all costs" has something to do with this.

The "all costs" are being born by blue collar American, and some sectors of white collar America.

Construction jobs which tend to pick up as the business cycle picks up (frame carpentry, roofing, dry walling) are being taken over by $4-an-hour illegal aliens.

Remember when Bill Clinton promised us high value service jobs?

We can't have a balanced economy selling cheeseburgers and paint brushes to each other.

I keep asking, has anyone done any research on "underemployment?" As the unemployment comes down it appears the underemployment rate (as defined by my feeble mind) is going up.

[Movie Guy]

One doesn't have to look too far back to see the problem.

PRODUCTIVITY AND COSTS
Third Quarter 2005, revised
Bureau of Labor Statistics

1. Business Sector Productivity

"Real hourly compensation, which takes into account changes in consumer prices, fell 0.8 percent in the third quarter and [fell] 4.0 percent in the second quarter."

2. Nonfarm Business Productivity

"When the rise in consumer prices is taken into account, real hourly compensation declined 1.4 percent in the third quarter of 2005 and [declined] 3.1 percent one quarter earlier."

3. Manufacturing Productivity

"When the increase in consumer prices is taken into account, real hourly compensation for all manufacturing workers fell 1.9 percent in the third quarter."

"Real hourly compensation dropped 0.4 percent rather than rising, after revision", in the second quarter.

4. Nonfinancial Corporations' Productivity

"When the rise in consumer prices is taken into account, real hourly compensation fell 0.6 percent in the third quarter."

"Hourly compensation also was revised down, from 3.7 to 0.8 percent", in the second quarter. Real hourly compensation declined 3.2% during the second quarter.

All part of the revised American economy under the advanced global trade model.

Economic Hydrology Theory is alive and well.

^

[Movie Guy]

Brad -- "The rate of growth of average compensation is probably doing much better than the rate of growth of average wages and salaries; the rate of growth of median compensation is probably about on a par with the rate of growth of median wages and salaries."

Probably doing better?

Not so fast. Remember that the Delphi Effect is in play. Dominoes are starting to fall. Other industries and corporations will follow their lead...

I did send you the following in an email this week.

UPDATE - Ford / GM / Delphi:

GM drops matches for 401(k)
Automaker also limits severance pay for salaried workers; UAW retiree challenges health benefit cuts
Thursday, December 15, 2005
http://www.detnews.com/apps/pbcs.dll/article?AID=/20051215/AUTO01/512150357/1148

General Motors Corp. is suspending contributions to its 401(k) savings plan for salaried employees and paring back severance benefits as it prepares for more white-collar job cuts in the coming year. The changes in the white-collar benefits plans were spelled out in an information packet distributed Wednesday to GM's 36,000 U.S. salaried employees, a copy of which was obtained by The Detroit News.

In addition to suspending 401(k) matching funds, GM has dropped the requirement that up to 3 percent of employee contribution and 100 percent of the company's contribution be invested in GM stock for a limited period of time.

Also, the company told employees that its white-collar severance packages will be changed to limit payouts to one month of base salary for each year of service, with a maximum of 15 months.

Earlier this year, GM told its salaried employees that their monthly health care premiums will nearly double in 2006, and that annual deductibles and out-of-pocket expenses for medical costs also will increase.

Word of the cuts at GM come a day after Ford Motor Co. informed salaried workers of a sweeping reduction of fringe benefits, which were outlined in an internal memo obtained by The News. The changes at Ford included higher medical costs for current and retired salaried workers. Ford suspended 401(k) matching contributions for employees in June.

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UAW backs Ford health deal
Tentative agreement would shift more care costs to retirees, blue-collar workers
Thursday, December 15, 2005
http://www.detnews.com/apps/pbcs.dll/article?AID=/20051215/AUTO01/512150373/1148

An interesting read...

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Ford caps retiree benefits
Ailing automaker freezes money for former salaried workers' health insurance, cuts white-collar pay hikes
Wednesday, December 14, 2005
http://www.detnews.com/apps/pbcs.dll/article?AID=/20051214/AUTO01/512140395/1148

Ford Motor Co. plans to freeze health care benefits for tens of thousands of white-collar retirees as well as raise out-of-pocket medical costs and curtail pay hikes for salaried workers in a sweeping overhaul of its benefits program.

The white-collar health care cutbacks announced internally Tuesday will be followed today by details of a tentative deal struck between Ford and the United Auto Workers to raise health insurance costs for blue-collar workers and retirees. The agreement still must be ratified by UAW members.

Ford will cap health care spending for retirees and their surviving spouses at the average 2006 level. After that, any increases in insurance premiums will have to be paid entirely by the retirees or their survivors. [Wow...]

Ford also will cap retiree life insurance benefits at $50,000 and eliminate a program that provided a vehicle allowance to the survivors of mid- to high-level management retirees after they died.

In June, auto supplier Visteon Corp. [formerly part of Ford] cut retirement health and life insurance benefits for its salaried workers. Two other suppliers, Metaldyne Corp. and ArvinMeritor Inc., plan to discontinue retiree benefits entirely next year, while Delphi Corp. will stop paying medical insurance for its retired salaried workers in 2007.

GM will increase out-of-pocket health costs for white-collar workers and retirees in 2006. Those employees, who have been paying 27 percent of their medical expenses, will foot 31 percent of those bills next year.

A recent survey showed that three-fourths of companies nationwide have asked retired workers to pay a higher share of insurance premiums in the past year. The study by the Kaiser Family Foundation, a nonprofit health care policy group, and human resource consultant Hewitt Associates found that 86 percent of companies said they planned to increase the amount retirees pay for health insurance in the next three years.

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Union blasts Delphi CEO for predicting quick deal
Thursday, December 15, 2005
http://www.detnews.com/apps/pbcs.dll/article?AID=/20051215/AUTO01/512150369/1148

If no deal is reached between Delphi and the UAW by Jan. 20, the supplier has said it will ask a bankruptcy court judge to void its union labor agreements.

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House, UAW hammer out pension reforms
Union concerns about benefits were addressed, committee chairmen say; vote expected this week
Wednesday, December 14, 2005
http://www.detnews.com/apps/pbcs.dll/article?AID=/20051214/AUTO01/512140359/1148

^

[me]

Its such a shame that a virtual monopoly , making billions can't afford it workers.

Verizon phases out defined benefit pension

WASHINGTON, Dec. 6 (UPI) -- Verizon Communications Inc., the No. 2 U.S. phone company, is phasing out defined-benefit pension plans for about 50,000 managers.

The move will save the New York-based company about $3 billion in the next 10 years, the Washington Post reported Tuesday.

Managers affected by the changes will keep pension benefits they have earned, and they also will get an extra 18 months of credit toward their pension and retiree medical benefits.

After June 30, 2006, affected Verizon managers will stop earning pension benefits, shifting instead to the company's 401(k) employee-contribution plan, and they will not get any more credit toward Verizon's subsidy of retiree medical benefits.

"This restructuring reflects the realities of our changing world. Companies today, including many we compete with, are not adopting defined benefit pension plans or subsidized retiree medical benefits," Ivan G. Seidenberg, Verizon's chief executive, said in a statement.

http://www.sciencedaily.com/upi/index.php?feed=Business&article=UPI-1-20051206-11271300-bc-us-verizon.xml

[liberal]

"Since 2000 the rate of productivity growth has been 3.5% per year--and we would expect real wage growth to be much higher. It hasn't."

Maybe there's something askew about the productivity measures.

[remo wiliams]

Is there a way to put up numbers rather than guess that median compensation is growing/stagnating at the same rate as wages?

[Something Polish]

I've been dying for someone to ask Dear Leader about this very question since before the last "election," something to the tune of:

"You claim that the economy is doing much better, yet while average real compensation has increased during your term, median real compensation has stagnated and actually started to decrease. Does this concern you, and how do you account for the difference."

Of course, Harvard MBA Bunnypants has no earthly idea of the difference between average and median, which is kind of the point.

[Donald A. Coffin]

Using BLS data (from their website) for Employer Cost for Employee Compensation, and adjusting to 2004 prices (using the CPI), I find that between 1993 and 2005 total employee compensation, including benefits, rose by 7.2%, or about 0.6% per year. All of that increase came between 1997 and 2004, when total compensation rose by 12.1% (1.4% per year). The average of the first 11 months of 2005 is about 0.6% lower than the average for 2004.

[spencer]

Deflating the total compensation number by a measure of total inflation is misleading.

The big difference between wages and compensation is healthcare where inflation
is far above overall inflation. If you deflate the portion of compensation going to healthcare by a measure of healthcare inflation and the other components of compensation -- essentially wages and retriement programs -- by overall inflation you will find that real compensation growth is much more in line with real wage growth.

The remaining difference between real average hourly earnings and real compensation stem from the sharp increase in income inequality where the compensation of the top few percent of the population has exploded while the income of the rest of the population has stagnated.

[wkwillis]

Low productivity growth is the same as low wage growth because low wages means that it does not pay to supplement workers with automation and it's automation that make people more productive.