Newspaper article THE JOURNAL RECORD

How Slow Can Your Paycheck Grow?

Newspaper article THE JOURNAL RECORD

How Slow Can Your Paycheck Grow?

Article excerpt

America's nine-year economic expansion is now the longest in history. Companies everywhere are thriving and sharing this prosperity with workers clamoring for raises. So paychecks must be ballooning, right?

Not exactly.

Pay should be climbing faster and faster as the unemployment rate falls and companies raise wages to lure new workers or to retain the ones they have. But wage increases, instead of getting bigger, are getting smaller.

What a puzzle that is for policy-makers. Anticipating faster wage increases, the Federal Reserve has begun to raise interest rates to slow the economy, a strategy that will continue, Alan Greenspan, the Fed chairman, suggested in congressional testimony last week. A slower economy, the thinking goes, reduces the demand for workers, taking pressure off employers to raise wages. Less pressure to lift wages means less pressure to raise prices to cover the higher labor costs. A major source of inflation is thus contained.

Strangely, though, wage growth is slowing even without higher interest rates. When economists first spotted the smaller raises in government statistics last summer, they thought it was a fluke. But now all the numbers for 1999 are in hand, and there is no mistake. Nearly everyone who earned $26 an hour or less -- 90 percent of the work force -- found that their pay last year, adjusted for inflation, rose by far smaller amounts than in 1998.

"It is a mystery," said Richard T. Curtin, director of the University of Michigan's Consumer Surveys. "The usual preconditions for wage pressure have existed for some time, but the behavior that we expected, based on behavior in the past, particularly in the 1960s, has not been forthcoming."

Wage growth had accelerated rather smartly in 1997 and 1998 as the economy boomed. But the expansion was even stronger last year, with even lower unemployment, and yet wage growth perversely slowed down. That happened whether the pay was for flipping hamburgers or designing machines and whether the measure was wages or a broader category that also includes bonuses and cashed-in stock options.

Only people earning north of $65,000 -- fewer than 10 percent of all workers -- found their incomes growing faster last year after adjustment for inflation. …

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