Wage Growth Picks Up

September 22, 2009

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Although stability in the job market remains elusive, with the unemployment rate still at a troubling level, wages for American workers appear to be rising.

Despite anxieties over pay cuts, compensation freezes and even the possibility of salary caps, employee wages in the United States are on the rise. But the prospect of a strong recovery for the job market remains uncertain because hiring is still sluggish, the unemployment rate is high and competition is intense for a smaller number of job openings. While those with jobs may be in the clear, challenges remain ahead for the unemployed.

According to the latest Employment Cost Index (ECI) from the U.S. Department of Labor, compensation for non-government and military workers rose by a seasonally adjusted 0.4 percent in the three-month period ending June 2009. Wages and salaries, which constitute 70 percent of worker compensation, rose 0.4 percent as well, while benefits, which account for the remaining 30 percent, rose 0.3 percent through June.

The non-seasonally adjusted data for the 12 months ending June 2009 show that civilian worker compensation rose 1.8 percent for the year, far below the 3.1 percent increase for the 12 months ending June 2008. Compensation for private-industry workers rose 1.5 percent over the 12-month period preceding June 2009, marking the lowest increase since 1980.

Between June 2008 and June 2009, the report claims, "[t]he deceleration of cost increases was evident in both wages and salaries as well as benefits, registering the smallest increases published in the series history."

Perhaps surprisingly, however, the latest three-month period exhibited widespread compensation growth across a range of different occupations. The goods-producing sector, which includes the mining, construction and manufacturing industries, saw pay increases averaging 0.1 percent, while manufacturing alone gained 0.2 percent.

The largest compensation gains were among workers in public administration (1.1 percent); finance and insurance (1 percent); and education and health services (1.6 percent). Industries that experienced net compensation losses include information (-0.5 percent), sales (-0.4 percent) and wholesale trade (-0.2 percent).

A separate employment report from the Labor Department, released earlier this month, supports the findings from the ECI. According to the government report, average hourly earnings for workers in private industries rose by $0.06 between July and August, bringing the total to $18.65. Weekly earnings rose by $1.99, bringing the August average to $617.32 per week.

At the same time, though, unemployment continued to rise in August, with 216,000 additional jobs lost and the unemployment rate climbing by 0.3 points to reach 9.7 percent. Despite the uptick in wages and benefits, the manufacturing and construction industries shed a combined 128,000 jobs last month.

With continuing uncertainty in the employment outlook, Congress is expected to pass legislation this week to extend unemployment benefits an additional 13 weeks in the 29 states with unemployment exceeding 8.5 percent, Reuters reports. The extension would provide coverage for nearly 300,000 workers whose benefits are set to expire in September.

"[W]e're still in unusual territory. The economy is just emerging from a severe recession, yet the pay of most workers has been rising. That wasn't the case at the end of any other recent recession," the New York Times notes.

The Times attributes this mixture of wage growth and rising unemployment to a low rate of hiring that amplifies competition and prolongs the time a worker spends unemployed, coupled with a lack of pay cuts from employers worried about dissatisfied or unmotivated workers.

An added factor is the rate of inflation, which remains surprisingly low. "In most recessions, inflation remains positive — indeed, higher than wage growth, which means that inflation-adjusted pay declines. In this recession, average prices have fallen 2 percent over the past year, while weekly pay has either been flat or risen 1 percent," the Times explains.

However, it should be noted that these wage increases are well below the average yearly gains expected in a healthy economy. So, although compensation has been generally increasing, many workers are not fortunate enough to enjoy its rewards.

According to a new survey from CareerBuilder.com, 61 percent of U.S. workers claim they currently live paycheck-to-paycheck, compared with 49 percent who said the same in 2008 and 43 percent in 2007. Approximately one out of five workers have cut back on their 401(k) contributions or personal savings, while 36 percent say they do not participate in a 401(k) or any other type of retirement plan and 33 percent claim they are not putting any money into savings at all.

"Workers are employing a variety of tactics to help make ends meet in this economy," Rosemary Haefner, vice president of human resources for CareerBuilder.com, said in an announcement of the findings. "Whether it's by keeping a tighter budget, finding ways to bring in additional income or adjusting their savings strategies, workers are doing their best to weather the current storm."

Earlier

How Our Compensation Changes in an Uncertain Economy

Lose your Perks, Keep your Work

Are Executive Pay Caps the Solution?

U.S. Employment Prospects Remain Mixed

Making Disengaged Employees Feel Valued

Research

Employment Cost Index — June 2009 U.S. Department of Labor, July 31, 2009

The Employment Situation — August 2009 U.S. Department of Labor, Sept. 4, 2009

House to Extend Jobless Benefits This Week by Andy Sullivan Reuters, Sept. 21, 2009

Wages Grow for Those With Jobs, New Figures Show by David Leonhardt The New York Times, Sept. 15, 2009

Six-in-Ten Workers Live Paycheck to Paycheck... CareerBuilder.com, Sept. 16, 2009

IPC Study on Recession-Fighting Strategies Shows an Industry Gaining Strength IPC-Association Connecting Electronics Industries, Aug. 28, 2009

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