Fastest Drop in Real Wages in 14 years

Wednesday, May 11, 2005 | 09:00 AM

With the economic recovery still being carried primarily by consumers -- Business CapEx spending and hiring has been feeble -- anything that put the consumer at risk is worth noting. So this little tidbit (spotted by an alert reader) was definitely disturbing:

"Real wages in the US are falling at their fastest rate in 14 years, according to data surveyed by the Financial Times. Inflation rose 3.1 per cent in the year to March but salaries climbed just 2.4 per cent, according to the Employment Cost Index.

In the final three months of 2004, real wages fell by 0.9 per cent. The last time salaries fell this steeply was at the start of 1991, when real wages declined by 1.1 per cent.

Stingy pay rises mean many Americans will have to work longer hours to keep up with the cost of living, and they could ultimately undermine consumer spending and economic growth.

So far, betting against the U.S. consumer has been a money losing proposition. When that bet finally does pay off, it may be a doosie . . .   


Real wages fall at fastest rate in 14 years
By Christopher Swann in Washington
FInancial Times,  May 10 2005 17:59

Wednesday, May 11, 2005 | 09:00 AM | Permalink | Comments (3) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Barry --

This seems like a pretty misleading stat to me. The appropriate thing to focus on is total compensation. Here's the relevant informationfrom the BLS report says:

"Annual compensation costs for civilian workers increased 3.5 percent for the year ended March 2005, compared with a 3.8 percent over-the-year
increase for March 2004... "

"The components of compensation showed differences in the rate of change. While increases in wages and salaries continued at a moderate pace, benefit costs continued to rise more rapidly. For civilian workers, wages and salaries rose 2.4 percent in the year ended March 2005, nearly identical with a gain of 2.5 percent in March 2004... Benefit costs gained 5.9 percent for civilian workers for the period ended March 2005, compared with an increase of 6.9 percent for the year ended March 2004."

Some slowdown, but not much. The key point is that benefits have become such an important part of labor compensation that it is just not meaningful to look at wages and salaries alone.

Posted by: Dave Altig | May 11, 2005 8:31:17 PM

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