Posted on Sat, Apr. 26, 2003
Golden age of pay comes to an end for U.S. workers
By David Leonhardt
New York Times
For the first time since the 1980s, the average pay of workers at all income levels is falling.
The pay of the nation's top earners has become the most recent to fall behind inflation. The weekly salary of workers at the 90th percentile of earners -- those who earn more than nine-tenths of all workers -- fell 1.4 percent over the last year, to $1,439, according to an analysis of government data by the Economic Policy Institute, a research group in Washington.
The inflation-adjusted weekly pay of the median worker -- the one who makes more than half of all other workers and less than half -- fell 1.5 percent between early last year and early this year, according to the Labor Department. It was the biggest drop since the mid-1990s.
After more than two years of canceling investments in new equipment and laying off workers, many companies are turning to the pay of remaining employees as they try to stay profitable during an economic slowdown. The weak labor market, which has lost more than 2 million jobs in the last two years, is allowing them to restrain pay without fear of losing workers, executives say.
The pay stagnation has ended the best period of salary growth in 30 years.
AT&T and Starwood Hotels, which owns the Sheraton chain, have recently frozen salaries for many workers. So have Leo Burnett, the advertising agency, and Boise Cascade, the paper maker.
Eastman Chemical cut the pay of its 15,000 employees at least 3 percent. At American Airlines, Boeing and Weirton Steel, unionized workers have recently voted to reduce their own wages in an effort to save their jobs.
The stagnation of wages has helped many companies report surprisingly good profits in recent weeks, even as demand for their products remains weak and health care costs have soared. An increase in profits is the first step toward a rebound in business spending on factories, equipment and technology, which would then create jobs, economists say.
But the wage slowdown is also leaving many American households with less money to spend, helping to make the current economic recovery the weakest in decades. During the first three months of the year, consumer spending increased at annual rate of 1.4 percent, which matched the slowest pace in 10 years, the Commerce Department reported Friday.
``You can find jobs that run from minimum wage into $8 or $9 an hour. Most of them don't have benefits of any type, and a lot of it is just part-time work,'' said Bob McCullough, a 49-year-old carpenter, explaining why he and his colleagues at Weirton Steel in West Virginia voted this year to cancel a $1-an-hour raise and replace it with a 5 percent pay cut.
``As far as the kinds of jobs that pay the wages we earn, they're just not here any more,'' said McCullough, who makes a little more than $50,000 a year. ``A lot of people have bought homes and put kids through college and led good lives here. That's what we're trying to preserve.''
By contrast, from 1997 to 2002, the weekly pay of the median worker rose almost 9 percent to $656, after adjusting for inflation. The gains effectively erased almost two decades of declining pay.
High earners did even better, with those at the 90th percentile receiving a 14.2 percent raise from 1997 to 2002. Over the last year, however, many affluent workers have had to accept an effective pay cut as their employers have realized that the weak job market has left them with few other options.
In August, Microsoft reduced the pay of its employees in the Bay Area because it was no longer worried about losing them to other companies. The cut reversed a pay increase that Microsoft had given the workers in late 2000, the second such raise that year.
The recent decline in energy prices has reduced inflation, offering some relief for household budgets. But the number of people filing first-time claims for jobless benefits rose in each of the last two weeks, suggesting that wages were not on the verge of accelerating.
Economists say the rise in benefit costs for companies is one reason businesses were trying to hold wages steady. After swelling during the bull market of the 1990s, pension funds also have lost value in recent years, requiring many companies to increase their contributions to them. For all the reasons that companies cite for cutting pay, however, the biggest one is simply that they are able to. |
