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Wages lagging behind inflation
I'm surprised no one has brought this up yet:
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Wages Lagging Behind Prices Inflation has outpaced the rise in salaries for the first time in 14 years. And workers are paying a bigger share of the cost of their healthcare. By Nicholas Riccardi Times Staff Writer April 11, 2005 For the first time in 14 years, the American workforce has in effect gotten an across-the-board pay cut. The growth in wages in 2004 and the first two months of this year trailed inflation, compounding the squeeze from higher housing, energy and other costs. The result is that people like Victor Romero are finding themselves falling behind. The 49-year-old film-set laborer had to ditch his $1,100-a-month Hollywood apartment because his rent kept rising while his pay of $24.50 an hour stayed flat. "There's no such thing as raises anymore," Romero said. This is the first time that salaries have increased more slowly than prices since the 1990-91 recession. Though salary growth has been relatively sluggish since the 2001 downturn, inflation also had stayed relatively subdued until last year, when the consumer price index rose 2.7%. But wages rose only 2.5%. The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average. Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down. Some see climbing profits and stagnant wages as not only unfair but also ultimately unsustainable. "Those that are baking the larger pie ought to see their slices expanding," said Jared Bernstein, an economist with the liberal Economic Policy Institute in Washington. But higher wages could hurt the economy by stoking inflation further. Employers might pass the costs on to consumers in higher prices, and that in turn might prompt the Federal Reserve to raise interest rates more aggressively, possibly slowing the recovery or even triggering a recession. For now, workers' wallets are being pummeled by something of a perfect storm of economic forces: a weak job market, rising health insurance premiums and other inflationary pressures. The biggest factor is the slack employment market, which means there is little pressure on businesses to boost pay. "They take advantage of you because there's no work and anyone will work for anything," Romero said. Although the unemployment rate has dropped to a relatively low 5.2%, that figure doesn't count the hundreds of thousands of jobless people who've given up their searches and dropped out of the labor market at a greater rate than anytime since 1988. At the same time, the cost of health premiums has skyrocketed, eating into the pool of corporate cash set aside for raises. Although pay rose only about 2.4% last year, benefit costs jumped almost 7%. With benefits factored in, workers' total compensation did outpace inflation in 2004, even if they didn't see it in their paychecks. But employers also are requiring workers to pay a greater share of their premiums. "Healthcare has eroded the wage base," said Janemarie Mulvey, chief economist with the Employment Policy Foundation, a business-funded think tank in Washington. "In the long run, we can't continue like this. If healthcare keeps crowding out wages forever, something's got to give." The squeeze is especially intense on the 47% of the workforce whose employers don't directly provide their health insurance. For lower-income workers, who are more likely to be uninsured, the falling value of their wages is even more serious because they're more likely to live paycheck to paycheck. And rising food and energy prices take a proportionately higher toll on the poor than on the rich. Historically, periods when wage growth is outpaced by inflation rarely last more than 18 months. That's partly because businesses don't want their employees' living standards to fall, as that injures morale, said Trewman Bewley, a Yale University economist who has studied wage activity during economic downturns. Many economists figure it's only a matter of time until workers can pry more money out of their employers to catch up to inflation again. If economic growth remains robust, as many forecasters predict, workers may gain greater leverage to negotiate wage hikes. "Chances are that those workers that have problems getting by because of higher fuel prices will probably tell their employers, 'I can't make it,' " said John Lonski, chief economist at Moody's Investors Service. That hasn't played out for Brian Chartier. The 29-year-old Glendale resident handles inventory for a Los Angeles manufacturing company. No one there, he said, has gotten a raise in two years. "They're able to do this and I haven't quit, because where am I going to go?" he said. "There are no jobs." While his salary remained flat, rising healthcare premiums kept eating up more and more of Chartier's take-home pay, so he dropped out of his employer's insurance program. His rent is also climbing. As Chartier loaded bags of groceries into his Honda Civic last week, he boasted that they were full of bargains. "I don't get a single thing that's not on sale," Chartier said. "I can't afford to anymore." Despite the failure of their wages to keep pace with inflation, American consumers have kept shopping. Consumer spending has continued to rise. Analysts say that's partly because some shoppers are thinking less about their paychecks and more about their biggest asset: their homes. Home prices rose 21.1% in Southern California and 9% nationwide from February 2004 to February 2005, sheltering consumers, and the economy, from much of the pinch of higher prices. "There's been a wealth effect afoot throughout much of the recession and the recovery," said Bernstein of the Economic Policy Institute, "because no matter what people's incomes were doing, their wealth was improving � their biggest assets, their homes, were accruing." As inflation sparks higher interest rates, most economists expect the housing market to cool, making shoppers more dependent on their paychecks. And even those who have seen their paper wealth rise phenomenally aren't happy about rising costs and stagnant pay. Corina Swatz has seen the value of her Silver Lake home triple in about a decade. But neither she nor her husband has gotten a raise in more than a year. Meanwhile, gas prices have forced them to shell out $55 to fill the tank of their Chevy Tahoe. "I used to spend $600 a month [on groceries]. Now I spend $800," Swatz, a mother of two, said as she made her weekly Costco run last week. The increased value of her home gives her only so much solace. "We're hanging in there." The danger is that people like Swatz, despite their home equity cushion, may pull the rug out from under the economic expansion by reining in their spending. That's what Gabriel Torres has done. The 56-year-old cook, who lives in Hollywood, hasn't gotten a raise in years but pays ever-higher prices to fill his Nissan Xterra. He and his wife have come up with a solution: Cut down on driving. "We don't go out much," Torres said. "We used to. But now we only drive when we really have to." http://www.latimes.com/business/la-...-home-headlines |
Re: Wages lagging behind inflation
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| Originally posted by MisterOpus1 I'm surprised no one has brought this up yet: Thoughts? Just a bump in the road, or a taste of things to come? Should we really be surprised by this? |
perhaps we're on the verge of another bout of stagflation....?
Re: Re: Wages lagging behind inflation
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| Originally posted by Shakka Fucking oil prices are a huge part of current inflationary trends. |
Re: Re: Re: Wages lagging behind inflation
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| Originally posted by St_Andrew Inflation is still not very high tho... |
Re: Re: Re: Re: Wages lagging behind inflation
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| Originally posted by Shakka Import Price Index was up over 7% vs. a year ago. That's a pretty steep level. Energy is a huge component of that rise. |
Re: Re: Re: Re: Re: Wages lagging behind inflation
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| Originally posted by Dupz 7%, you serious? even with Chinese imports pushing down the prices of labour-intensive goods we consume...? I know that in Australia we have the Chinese, and only the Chinese, to thank for us keeping our inflation in check. |
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| By Joe Richter April 15 (Bloomberg) -- Prices of goods imported into the U.S. increased last month by the most since January 2003, paced by higher costs for crude oil, building materials and other industrial supplies, government figures showed. The 1.8 percent rise followed a 0.8 percent increase in February, the Labor Department said today in Washington. Excluding petroleum, prices rose 0.3 percent. Imported industrial supplies prices excluding energy were up 1.1 percent in March, the biggest rise in four months. Federal Reserve policy makers are forecast to raise interest rates to keep those costs from becoming more widespread, economists said. Prices of consumer goods from overseas were up just 1 percent in the last year, suggesting competition is helping keep companies from passing along higher raw materials costs. ``The specter of inflation, the inflation genie, is still pretty well under control,'' U.S. Treasury Secretary John Snow said in an interview. ``The Fed is clearly conscious of the need to be on the alert for inflationary forces, and to lean against them. The overall environment though, as the FOMC indicated, is still quite benign on the inflation front.'' Imported capital goods prices declined for a second month, automobile costs were unchanged from February and consumer goods fell for the first time since August, the Labor report showed. The rise in overall import prices was the biggest since a 1.8 percent increase in January 2003. Economists forecast a 1.4 percent rise in the index, based on the median estimate in Bloomberg News survey. All expected increases, ranging from 0.3 percent to 2.2 percent. Year Over Year The costs of all imported goods last month were 7.1 percent greater than in March 2004. Excluding petroleum, they were up 2.9 percent from the same month last year, compared with a 2.8 percent gain in the 12 months that ended in February. Prices of imported petroleum surged 10.6 percent last month, after rising 4.6 percent in February. Compared with a year earlier, the price was up 36 percent. At their March 22 meeting, Fed policy makers said inflation risks were ``now tilted a little to the upside.'' Central bankers last month raised their target rate for overnight bank lending a quarter point to 2.75 percent. Imported food prices rose 3.4 percent after rising 1 percent the month before. Prices for imported consumer goods other than automobiles fell 0.4 percent after rising 0.5 percent the prior month. Business Equipment The cost of imported capital equipment dropped 0.1 percent for a second month in March. Compared with the same month last year, capital-goods prices were down 0.9 percent. Apparel prices declined 0.3 percent in March after falling 0.1 percent. The end of worldwide quotas on textiles Jan. 1 gave a boost to cheaper fabric imports from China. Textile shipments from China rose almost 10 percent in February, according to the latest trade data. The price of goods imported from China fell 0.1 percent, and was down 0.6 percent over the past year. Goods from Japan were unchanged, and those from the European Union rose 0.2 percent. Canadian goods prices rose 2 percent. Prices of U.S. products exported to other countries rose 0.7 percent in March after no change in February. Prices for agricultural exports increased 3.7 percent while costs for non-agricultural exports rose 0.4 percent. Energy Oil futures on the New York Mercantile Exchange averaged $54.63 a barrel last month, up from $48.05 in February. Oil futures fell to less than $50 a barrel this week. Prices of other commodities such as copper have also risen. ``We are seeing these prices kind of peak here during 2005,'' said Alexander Cutler, chief executive of Cleveland-based Eaton Corp., in an interview yesterday. ``We don't think they're going down substantially though. As long as worldwide demand is this high we think you'll see these prices of oil and many of these metal-based commodities continue to be fairly high. Those are being passed through the economy and it's part of the reason inflation is up.'' Eaton is the world's second-largest maker of hydraulic equipment. Parker Hannifin Corp., also based in Cleveland, is the world's largest maker of hydraulic equipment. Anhui Tongdu Copper Stock Co., China's second-largest copper producer by output, said this week that first-quarter profit rose 68 percent on higher prices. Copper futures have risen 19 percent this year in Shanghai, driven by a global shortage and rising Chinese demand. Consumer Demand Signs of waning consumer demand in the U.S. and excess supply of some goods worldwide may help limit the extent to which businesses can pass higher supply costs on to consumers. U.S. retail sales rose by less than forecast in March, suggesting higher gasoline prices are prompting consumers to spend less on other goods. Expansion in the $35 billion liquid crystal displays industry has led to an oversupply that drove first-quarter prices down 41 percent from a year earlier. Seoul-based LG. Philips LCD Co., the world's second-largest maker of liquid crystal displays, had its first quarterly loss in two years after an industry glut. The dollar rose 1.4 percent this year through the end of March against a basket of currencies of U.S. trading partners. It fell 4.6 percent in 2004 and is down 8.9 percent since March 2002. A stronger dollar makes foreign goods cheaper for U.S. companies and consumers. Fed Richard Fisher, president of the Federal Reserve Bank of Dallas and a former U.S. trade official, said in an April 13 conference call that ``the economy looks to be in fairly good shape.'' ``There's always going to be concern at the Federal Reserve that we don't let inflation raise its hideous head,'' Fisher said. ``But presently, it looks like it is well contained.'' The import price report is the first of three measures of inflation for the month of March. Wholesale prices, due April 19, are forecast to rise 0.6 percent, and 0.2 percent when food and energy are excluded, based on the median estimates in a Bloomberg survey. March consumer prices probably increased 0.4 percent, a separate survey showed. The government's import price statistics aren't seasonally adjusted, meaning there is typically little correlation between those and producer and consumer prices. |
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