Workers' pay and benefits lagging far behind inflation

Inflation surged in the second quarter with soaring energy and food costs, as any consumer can attest.

The growth in workers’ compensation, however, remained flat with the first quarter and down from a year earlier, the government’s latest data show.

It’s another sign that the pain in your wallet is real -- and maybe worse than you think.

The Labor Department today said its employment cost index, which measures what employers shell out for wages and benefits, rose 0.7% in the second quarter, matching the first-quarter increase.

Last quarter’s rise was down from a 0.9% increase in the second quarter of 2007, a clear indication that employers have been feeling less pressure to boost compensation as jobs overall are harder to find.

Now, look at the annualized numbers: In the 12 months through June, total employment costs were up 3.1%. By contrast, inflation as measured by the consumer price index was up 5% in the same period.

Another negative trend for workers: The benefits component of the employment cost index rose just 0.6% last quarter, also flat with the first-quarter increase and less than half the 1.3% rise in the second quarter of 2007.

Employers’ cost of benefits is down "because employees are paying more of their own costs," notes Diane Swonk, economist at Mesirow Financial in Chicago. Think medical care co-payments, for instance.

One more dismal report today: The government said new claims for unemployment benefits rocketed to 448,000 last week, an increase of 44,000 from the previous week and a five-year high.

Analysts noted that the big increase might have partly reflected an influx of claims by people who had exhausted their benefits and were reapplying under a federal extension program that took effect earlier this month.

Even so, the need for extended benefits by a bigger chunk of the worker population doesn’t paint an encouraging picture of the job market. People wouldn't be applying for extended benefits "if they were not losing jobs in the first place," Goldman, Sachs & Co. economists noted in a report today.

All of this is setting the scene for the government’s report on Friday on July employment trends. The consensus forecast is for a loss of 75,000 jobs this month, which would be the seventh consecutive monthly decline in payrolls.

Photo: Tim Boyle/Getty Images

Comments

[workingforpeanuts]

I guess the bosses with the multimillion dollar salaries don't care. If costs go up, they'lll just get the board to give them a raise.

[tedson]

This is the result of the global economy. The United States is becoming just like any other third world country.

[riposter]

Exogenous cost increases have to be absorbed by those within the economy or we would enter an inflationary spiral like pre-1980.

[RB]

According to Ben Stein (NY Times June 29, 2008), “real wages” have been falling for American workers since 1974. He goes on to state that: “The problem is the stagnation of wages.”

In other words, workers' pay and benefits have been lagging far behind inflation since 1974.

But Ben, like Alan Greenspan, is the consummate Republican. His solution is NOT for American workers to be paid more, but for people to “whip their children into a frenzy to get more education. Not many doctors and lawyers are worried about the high price of gasoline. Not many people at hedge funds are worried about filling the tanks of their Bentleys.”

So for anyone worried that they aren’t making enough money and that their “earning power” is being eroded by Reaganomics. Or for anyone that may even be out of work and are having difficulty finding a job, the answer is simple: don’t worry. Maybe Phil Gramm said it best, stop “whining” because it’s nothing more than a “mental recession”. Pure illusionary. It’s good that John McCain doesn’t feel that way though. He just believes that “part of the problem we have in any recession is psychological”…which is good because we are “not” in a recession.

[Frank]

Years ago, a family bought one of the beautiful craftsman homes down the street promptly removed the front lawn planted fruit trees and vegetables . I thought, what a selfish and repulsive thing to do. With the price of food rising with no end in sight and water being what it is, I am starting to think it`s not a bad idea. Better than eating grass!