Housing market, consumer confidence improve while workers' wages languish: Compensation, up by 2.9%, trailed inflation pace in the latest 12 months
WASHINGTON -- More than four years into the economic expansion, wage increases remain modest.</br></br>The Labor Department said yesterday that total compensation costs rose just 2.9% in the 12 months ended in June. That's slightly less than the inflation rate of 3% during the same period. Wage and salary costs were just keeping up with inflation during the year ended in June, and benefit costs were up just 2.7%, the department's employment-cost index indicated. In the second quarter, compensation costs rose 0.7%, slightly more than the 0.6% gain registered in the first quarter. Compensation costs include wages or salary and benefits.</br></br>There are several explanations for the sluggishness of compensation gains: international competition, the decline of labor unions, health-care cost containment, companies subcontracting their extra work and automation.</br></br>"Manufacturing and service companies have really elected to put the squeeze on what they pay their workers," says Stephen Roach, chief economist of Morgan Stanley & Co. "They've had to."</br></br>The slow increase in compensation costs is all the more surprising when productivity increases are considered. Over the past few years, the trend in productivity growth has been about a half a percentage point more than it was in the 1970s or 1980s. Companies, meanwhile, have become fat with cash from the profits. "Within a year of a meaningful uptick in productivity, we should see a meaningful uptick in wages," Mr. Roach says.