Real Wages Fail to Match a Rise in Productivity

August 28, 2006 By STEVEN GREENHOUSE and DAVID LEONHARDT ...the current ... period of economic growth ... fails to offer a prolonged increase in real wages for most workers. The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity...has risen steadily over the same period. As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.” Since last summer...the value of workers’ benefits has also failed to keep pace with inflation, according to government data. At the very top of the income spectrum, many workers have continued to receive raises that outpace inflation, and the gains have been large enough to keep average income and consumer spending rising. In a speech on Friday, Ben S. Bernanke, the Federal Reserve chairman...warned that the unequal distribution of the economy... “threaten the livelihoods of some workers and the profits of some firms,” Mr. Bernanke said, policy makers must try “to ensure that the benefits of global economic integration are sufficiently widely shared.” ...Earlier this month, the University of Michigan reported that consumer confidence had fallen sharply in recent months... Economists offer various reasons for the stagnation of wages. ...the buying power of the minimum wage is at a 50-year low...health care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages. Together, these forces have caused a growing share of the economy to go to Companies (Ed., property speculators) instead of workers’ paychecks. In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132 billion. Total employee compensation — wages plus benefits — has fared a little better. Its share was briefly lower than its current level of 56.1 percent in the mid-1990’s and otherwise has not been so low since 1966. Over the last year, the value of employee benefits has risen only 3.4 percent, while inflation has exceeded 4 percent, according to the Labor Department. In Europe and Japan, the profit (Ed., read privilege: speculation, licences, patents, copyrights) share of economic output is also at or near record levels, noted Larry Hatheway, chief economist for UBS Investment Bank, who said that this highlighted the pressures (Ed., inequality) of globalization on wages. Many Americans, be they apparel workers or software programmers, are facing more competition (Ed., more desperate) from China and India. ...economists at Goldman Sachs wrote, “The most important contributor to higher profit (Ed., speculation) margins over the past five years has been a decline in labor’s share of national income.” ...Worker productivity rose 16.6 percent from 2000 to 2005, while total compensation for the median worker rose 7.2 percent, according to Labor Department statistics analyzed by the Economic Policy Institute, a liberal research group. Benefits accounted for most of the increase. (Ed., subsequently captured by land price) “If I had to sum it up,” said Jared Bernstein, a senior economist at the institute, “it comes down to bargaining power and the lack of ability of many in the work force to claim their fair share of growth.” (rent) Nominal wages have accelerated in the last year, but the spike in oil costs (Ed., monopolised resource rents) has eaten up the gains. Now the job market appears to be weakening, after a protracted series of interest-rate increases by the Federal Reserve. ...gains are a result mainly of increases (Ed., privileges) at the top of the income spectrum that pull up (Ed., corrupt) the overall numbers...workers at the 90th percentile of earners — making about $80,000 a year — inflation has outpaced their pay increases over the last three years, according to the Labor Department. “There are two (Ed., non-) economies out there,” Mr. Cook, the political analyst, said. (Ed., monopliconomy,) “One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings. “And then there’s the working stiffs,’’ he added, (Ed., poviconomy) “who just don’t feel like they’re getting ahead despite the fact that they’re working very hard. And there are a lot more people in that group than the other group.” In 2004, the top 1 percent of earners — a group that includes many chief executives — received 11.2 percent of all wage income, up from 8.7 percent a decade earlier and less than 6 percent three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data. Original 1650 words