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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Lucretius who wrote (58903)	5/9/1999 10:50:00 AM
From: Lucretius	Respond to of 132070

ho ho ho Slow U.S. wage gains a mystery to economists By Caren Bohan WASHINGTON, May 9 (Reuters) - When Randy Leivan set out to hire workers for a big East Coast expansion of his dry cleaning chain, he was undaunted by the tightest job market in a generation. His proliferating Dryclean Depot stores in the Washington and Baltimore areas have brought in 60 new employees in the last year. He said his outlets, touting low prices and efficient service, pay more than traditional Mom-and-Pop cleaners. But he has not had to offer big pay raises to keep people on. Nor was high pay the top issue for many workers. ''Just dollars are not going to make you competitive in this labor market,'' Leivan said, adding that flexible hours and health benefits often seemed to be more crucial incentives. Leivan's tale runs counter to economic theories suggesting that a very low unemployment rate causes wages to climb, which in turn sends business costs and inflation higher. His experience could offer some comfort to policy-makers such as Federal Reserve Chairman Alan Greenspan, who in a Chicago speech last week cited the increasingly taut labor market as an ''imbalance'' that risked pushing up prices and derailing the eight-year-old economic expansion. But even in that speech, which unnerved U.S. stock and bond markets, Greenspan acknowledged that price pressures stemming from the job market might not be a foregone conclusion. ''An increase in inflation doggedly forecast to follow the ever lower unemployment rate -- now the lowest in three decades -- has not occurred,'' he said. At least so far, government figures on worker compensation also could help to temper some of Greenspan's worries. The jobless rate of 4.3 percent is well below the 6 percent level once viewed as a trigger for wage inflation. Yet in recent months, wage gains have slowed, not sped up. To the extent that wages have risen, they have not increased the bottom-line costs for many companies because productivity has improved, meaning employees are offering firms more value. Private economists last month were astonished when the Labor Department said its Employment Cost Index, the broadest measure of U.S. labor costs, gained just 0.4 percent in the three months ended in March. It was the smallest quarterly gain since the department began publishing the series in 1982. ''It is a mystery,'' said economist Paul Krugman of the Massachusetts Institute of Technology. But he said quirks in the ECI could be exaggerating some of the mildness in labor costs. In tallying the ECI, the government takes an average of wage gains in various occupations. But if a person moves from a low-paid job to a higher-paid one, that is not counted as a wage rise. ''There may be some job-title inflation going on,'' Krugman said, citing examples of secretaries becoming administrative assistants but doing essentially the same job. Many companies are also offering lucrative incentives such as stock options that are not picked up by the ECI. Still, Dryclean Depot's Leivan is far from alone among business people who say they have found ways to keep a lid on wage gains. At a gathering in Williamsburg, Va. of the Business Council, heads of major companies such as AlliedSignal Inc. and Marriott International Inc., insisted that amid low inflation, wages were remaining tame. ''The pressures have been on finding people, not on raising wages,'' J.W. Marriott Jr., chairman of Marriott, told Reuters. While many economists emphasize the role that wage gains can play in driving up inflation, a 1996 study by the Federal Reserve Bank of Dallas suggests they have it backwards. Looking at historical trends, Dallas Fed economist Kenneth Emery concluded that inflation more often influences wages than the other way around. Even as the U.S. economy has grown briskly in recent years, economic conditions in Asia and other parts of the world have been weaker, depressing the prices of oil and other imports that feed into U.S. consumer prices. Inflation over the past year is up a mere 1.7 percent. That means workers do not need a large wage gain to keep ahead of inflation. It also puts added pressure on businesses to hold down wages and salaries, since they have a harder time passing the costs along to consumers who are now accustomed to low prices. Richard Berner, economist at Morgan Stanley, said the wage and inflation picture could change as oil prices start to rebound and global economic turmoil simmers down. ''The shock of the global crisis had a conditioning impact on people's inflation expectations,'' Berner said. ''The question you have to ask is: Has it permanently changed inflation expectations?''