The Economy; CAPITAL: Workers' Wages Trail Growth in Economy
THE RECESSION in the U.S. has been over for more than three years. The economy has been growing at better than a 4% annual clip for the past two. Profits, at least until recently, have been up. Growth in worker productivity has remained strong. Unemployment has fallen to 5.2%, the lowest since September 2001.</br></br>Yet wages for the typical worker aren't even keeping up with inflation. Wages are growing unusually slowly for this point in the economic cycle, especially given persistently strong growth in productivity, the goods and services produced for each hour of work.</br></br>The U.S. Labor Department says that hourly wages for private-sector workers who aren't bosses rose 2.6% to nearly $16 an hour between March 2004 and March 2005, which is short of the 3.1% increase in consumer prices over that period. Weekly paychecks are up a bit more, but only because workers are putting in more hours. The department's broader Employment Cost Index, which covers more workers, says wages and salaries rose just 2.4% last year, well shy of last year's 3.3% increase in prices.</br></br>Employers don't give raises because they feel generous. They give raises because they can afford to -- that is where productivity comes in -- and because they have to do so to attract or keep workers. Profits and productivity, up 4% last year, suggest employers have the money, but don't feel pressure to give raises.</br></br>To those who argue that wages aren't rising because "today's businessmen are greedy . . . or Wal-Mart is cunning," Bradford DeLong, an economist -- and prolific blogger -- at the University of California at Berkeley replies that's nonsense. Something else is going on. "The link between wages and productivity depends on the fact that businessmen are greedy and cunning," he says. "You don't raise wages out of altruism; instead you expand your work force out of greed, and the expanding work force pushes wages up."