Crowded labor market drives lackluster wage growth

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A labor market flooded with unemployed workers continued to put downward pressure on wages and compensation in the last three months, according to employment cost data released Friday by the Bureau of Labor Statistics. Wages and salaries increased just 0.3% in the third quarter of 2011, while benefits increased just 0.1%, the slowest growth rate since 1999.

Wages and salaries grew 1.6% in the 12 months ending Sept. 30, while benefits rose 3.2%. Benefits have grown faster than wages and salaries over the past two years. In the quarter, the overall employment cost index rose at the slowest pace in two years.

Compensation was dragged down by flat salaries for state and local government workers. Their pay increased just 1.5% over the year, the slowest growth since the data started being recorded in 1982. (In June 1982, state and local government compensation grew 8.5% over the year). That’s just one more sign that state and local government positions, once seen as work that came with job security, pensions and stable pay, are no longer the sinecures they once were.

In the three months ending Sept. 30, wages and salaries in the private sector grew in financial activities and insurance, 0.8% and 0.9%, respectively, and in installation and repair. They shrank in the public sector in education, especially among elementary and secondary school employees.

Total compensation, which includes benefits, grew the fastest in the Detroit area over the year -- 4.9%. It rose just 1.9% in the Los Angeles area, and 2.9% in the Phoenix area. If benefits are taken out, wages and salaries grew the fastest in the Minneapolis region over the year, 2.5%, followed closely by Boston and Houston. They grew the slowest in Los Angeles, just 1.3%.

These growth rates aren’t likely to speed up until the unemployment rate shrinks, wrote Gregory Daco, an economist with IHS Global Insight.

‘With the unemployment rate at 9.1%, ongoing labor market slack should continue to put downward pressure on employment costs,’ he wrote. ‘While this is good news for business, it does not bode well for U.S. households whose real disposable incomes fell 1.7% in the third quarter -- the biggest drop since the third quarter of 2009.’

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-- Alana Semuels