2006 December 07 Thursday
US Wages Finally Start Beating Inflation

How long will the good times last?

After four years in which pay failed to keep pace with price increases, wages for most American workers have begun rising significantly faster than inflation.

With energy prices now sharply lower than a few months ago and the improving job market forcing employers to offer higher raises, the buying power of American workers is now rising at the fastest rate since the economic boom of the late 1990s.

The average hourly wage for workers below management level — everyone from school bus drivers to stockbrokers — rose 2.8 percent from October 2005 to October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

Will the housing slump pull the entire economy down into a recession and end this brief period of wage gains?

If wages rise for only a few months, the current expansion, on the verge of entering its sixth year of growth, would still stand out as an unusually bad one for workers — indeed, the only one since World War II without a sustained pay increase.

In the third quarter, which included the early weeks of the recent pay increases, the share of the nation’s economic output going to workers’ pay and benefits fell to its lowest level in 40 years, according to the Commerce Department.

Further, the average hourly wage for a worker in a nonmanagerial position, $16.91 an hour in October, was about the same as it was in 2003 when inflation is taken into account.

Bringing in large numbers of low skilled and low wage Hispanics only makes this problem worse. We do not benefit from growth in the size of our lower classes.

Downward pressures on wages are a really big reason why the Democrats did so well in the recent elections:

In the exit polls conducted on Election Day last month, on the other hand, only 30 percent of voters said they expected life to improve for the next generation of Americans.

America has big demographic problems that are going to make future generations do less well on average. The most obvious problem is the rising HIspanic fraction of the population. On average they do not do as well in school or rise as far in careers as whites do. So as they become a larger fraction of the population the average wage will stagnate and economic growth will slow.

Another problem is the aging of the population.In its earlier stages it was a net plus in one respect: The average experience level of the workforce rose. The rise of middle aged workers increased productivity in highly skilled occupations. But the trend toward an older population is going farther toward the ages where productivity declines and people stop working altogether.

Share |      By Randall Parker at 2006 December 07 10:28 PM  Economics Labor

Borat said at December 8, 2006 6:32 AM:

Something not quite related but interesting:

The richest 1 percent of adults in the world own 40 percent of the planet's wealth, according to the largest study yet of wealth distribution. The report also finds that those in financial services and the internet sectors predominate among the super rich. Europe, the US and some Asia Pacific nations account for most of the extremely wealthy. More than one-third lives in the US. Japan accounts for 27 percent of the total, the UK for 6 percent and France for 5 percent. The global study - from the World Institute for Development Economics Research of the UN - is the first to chart wealth distribution in every country as opposed to just income, for which more comprehensive date is available.

I would like to see what the trend in % has been over the last 50 years...it would be obvious the West is losing global share of wealth to Asian competition, particularlly Japanese, but also other countries.

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