Dog bites man

[Louis Proyect <lnp3@xxxxxxxxx>]

NY Times, July 18, 2004
Hourly Pay in U.S. Not Keeping Pace With Price Rises
By EDUARDO PORTER

The amount of money workers receive in their paychecks is failing to
keep up with inflation. Though wages should recover if businesses
continue to hire, three years of job losses have left a large worker
surplus.

"There's too much slack in the labor market to generate any pressure on
wage growth,'' said Jared Bernstein, an economist at the Economic Policy
Institute, a liberal research institution based in Washington. "We are
going to need a much lower unemployment rate.'' He noted that at 5.6
percent, the national unemployment rate is still back at the same level
as at the end of the recession in November 2001.

Even though the economy has been adding hundreds of thousands of jobs
almost every month this year, stagnant wages could put a dent in the
prospects for economic growth, some economists say. If incomes continue
to lag behind the increase in prices, it may hinder the ability of
ordinary workers to spend money at a healthy clip, undermining one of
the pillars of the expansion so far.

Declining wages are likely to play a prominent role in the current
presidential campaign. Growing employment has lifted President Bush's
job approval ratings on the economy of late. According to the latest New
York Times/CBS News poll, in mid-July, 42 percent of those polled
approved of the president's handling of the economy, up from 38 percent
in mid-March.

Yet Senator John Kerry, the likely Democratic presidential nominee, is
pointing to lackluster wages as a telling weakness in the
administration's economic track record. ``Americans feel squeezed
between prices that are rising and incomes that are not,'' Mark Mellman,
a pollster for the campaign, said in a memorandum last month.

On Friday, the Bureau of Labor Statistics reported that hourly earnings
of production workers - nonmanagement workers ranging from nurses and
teachers to hamburger flippers and assembly-line workers - fell 1.1
percent in June, after accounting for inflation. The June drop, the
steepest decline since the depths of recession in mid-1991, came after a
0.8 percent fall in real hourly earnings in May.

Coming on top of a 12-minute drop in the average workweek, the decline
in the hourly rate last month cut deeply into workers' pay. In June,
production workers took home $525.84 a week, on average. After
accounting for inflation, this is about $8 less than they were pocketing
last January, and is the lowest level of weekly pay since October 2001.

On its own, the decline in workers' wages is unlikely to derail the
recovery. Though they account for some 80 percent of the work force,
they contribute much less to spending. Mark M. Zandi, chief economist at
Economy.com, a research firm, noted that households in the bottom half
of income distribution account for only one-third of consumer spending.

Nonetheless, coming after the bonanza of the second half of the 1990's,
the first period of sustained real wage growth since the 1970's, the
current slide in earnings is a big blow for the lower middle class.
Moreover, the absence of lower income households could also weigh on
overall economic growth - putting a lid on the mass market and skewing
consumption toward high-end products.

"There's a bit of a dichotomy," said Ethan S. Harris, chief economist at
Lehman Brothers. "Joe Six-Pack is under a lot of pressure. He got a
lousy raise; he's paying more for gasoline and milk. He's not doing that
great. But proprietors' income is up. Profits are up. Home values are
up. Middle-income and upper-income people are looking pretty good."

Tales of tight budgets at the bottom are springing up across the
country. "I haven't had a salary increase in two years, but the cost of
living is going up," said Eric Lambert, 42, a father of three who earns
$13 an hour as a security guard at 660 Madison Ave. in Manhattan.

Silvia Vides, 43, who earns $11 an hour in a union job as a housekeeper
at the Universal City Sheraton hotel in Los Angeles, said, "Sometimes I
don't know how I pay the bills and food and rent." She has cut back on
all nonessential expenditures and she is four months behind on payments
on $4,000 in credit-card debt.

full: http://www.nytimes.com/2004/07/18/business/18WAGES.html

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