Average pay is dropping for first time since 1980s
David Leonhardt, New York Times
Published April 28, 2003
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 past year, to $1,439, according to an analysis of government data by the
Economic Policy Institute, a research group in Washington, D.C.
The inflation-adjusted weekly pay of the median worker -- the one at the
point where half of salaries are above and half are below -- 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 past 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.
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.
"Some of the salaries had gone sky high," said Vinod Kumar Gupta, the chief
executive of InfoUSA, a company based in Omaha that sells consumer
databases to marketers and recently cut all annual pay above $30,000 by
one-tenth. "We had people in $40,000 jobs, and we had no choice but to pay
them $80,000 because there was a shortage of people."
Now, Gupta said, "We're not having any trouble finding new people."
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.
But the wage slowdown is also leaving many households with less money to
spend, helping to make the current economic recovery the weakest in
decades.
"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.
By contrast, between 1997 and 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 between 1997 and 2002. Over the past 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
options.
For all the reasons that companies cite for cutting pay, however, the biggest
one is simply that they are able to.
"It took a long time for the pressure of the full-employment economy to
dissipate," said Jared Bernstein, an economist at the Economic Policy
Institute, a group backed by foundations and labor unions. "But it's gone."
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