Wages losing ground

From 2000 to 2005, real median family income dropped 0.5 percent a year.
MIAMI -- All that hard work probably isn't paying off -- for you.
In the past 10 years, U.S. productivity, a measure of worker output, has increased 33 percent, something economists have hailed as a victory for America's "new economy," because productivity is often seen as the key to raising living standards.
In a speech last week, Federal Reserve Chairman Ben Bernanke called the gain one of the past decade's most significant economic developments.
But the problem, according to a new book-length study, is that workers are no longer seeing those increases where it matters most to them: in their paychecks.
Wages stopped rising and actually began losing ground starting in 2001, despite continued growth in productivity and corporate profits, according to an analysis of government data in "The State of Working America: 2006/2007" by the Economic Policy Institute, an independent Washington think tank.
"We've had stellar productivity growth over this recovery, but the economists' mantra -- such growth automatically translates into improved living standards -- no longer holds," said Jared Bernstein, an EPI economist and one of the authors.
Here's an example
Case in point: UPS driver Mike Cortez. Last month, he got a 4 percent raise on his hourly pay, which is around $27 an hour. But with South Florida's inflation rate running at 5.8 percent, his costs are increasing much faster. A Weston, Fla., homeowner, his insurance premium alone is up 66 percent this year.
"I really feel like corporate America forgets about the working guy," said Cortez, who feels jobs like his are a key contributor of the company's strong profitability of late. UPS, the world's largest shipping carrier, earned more than $1 billion in its most recent quarter, a 7.6 percent increase over the year before.
He thinks he gets some share of that, but only because he's with the Teamsters. "We're better off than some," he said.
Between 1995 and 2000, U.S. productivity -- the amount that an average worker produces in an hour -- grew about 2.5 percent annually. And real median family income grew right along with it, at about a 2.2 percent annual clip.
Productivity grew even faster between 2000 and 2005, an average of 3.1 percent annually, helped by improvements in technology. But real median family income dropped 0.5 percent each year during that same time, according to the study's data.
"Too many forces are wedged between overall growth and paychecks, with the result that wages as a share of national income are the lowest on record while the corporate profit share stands at a 56-year high," said Bernstein. Among the ways to help reverse the disparity are raising the federal minimum wage, creating universal health-care coverage and increasing union membership, he said.
Wachovia Bank Senior Economist Mark Vitner cautions that looking at wages doesn't tell the whole story of worker compensation these days, because companies are investing more in benefits like health care and 401(k) plans in lieu of raising salaries.
What's happening
Still, he agrees with EPI's conclusions that productivity gains and increased corporate profitability haven't been passed down to the workers of today. And on that front, he's not too encouraged that will change anytime soon.
Building a fortress balance sheet is the priority now, especially since companies are under much closer scrutiny in the post-Enron era, said Vitner. He calls the corporate mind-set for the first half of this decade one of "excessive caution" rather than the infamous "irrational exuberance" of a decade ago.
"They're worried about soaring health-care costs; they're worried about pension liabilities. They're being extremely cautious and trying to hold the line on compensation," he said.
The only workers who are going to see big salary increases are those who are willing to shop their talents around to the highest bidder, he said -- one explanation why CEOs and other senior executives are able to command such high salaries.
In 2005, CEOs earned about 262 times more than the average worker, according to EPI data. Forty years ago, that ratio was much smaller, with CEOs earning 24 times more.
"Those guys are brave enough to say, 'Hey Coca-Cola, if you're not going to make me CEO, I'm going to Clorox,'" Vitner said. "If you're going to be a foot soldier, odds are, you're getting squeezed."

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