Financial Times (London, England), May 11, 2005, Wednesday

Copyright 2005 The Financial Times Limited
Financial Times (London, England)

May 11, 2005 Wednesday
London Edition 1

SECTION: THE AMERICAS; Pg. 12

HEADLINE: Stagnant salaries push more families towards the breadline: A surfeit of workers and the threat of off-shoring are allowing employers to call the shots on pay, reports Christopher Swann

BYLINE: By CHRISTOPHER SWANN

BODY:
The last time Miguel had a pay rise that kept pace with cost of living, Bill Clinton was in the White House, the Spice Girls were still together and investors were in love with internet stocks.
Since then, the hotel banquet server has been forced to give up a two-bedroom apartment and now shares one bedroom with his wife and two children.
"It has been harder and harder to get pay rises out of the company - even though profits are good," he complains.
Over the past year the problem of stagnant wages has not been confined solely to those working for companies that are heavily exposed to foreign competition. With wages across the nation failing to keep pace with inflation, an increasing number of workers are justified in feeling that they have been treading water, or worse.
For most economists, this suggests that there is more slack in the labour market than the 5.2 per cent unemployment rate would suggest. Others say globalisation and lower levels of unionisation may have led to a longer-term shift in the balance of power between workers and employers.
In the past economic cycle, companies have been extremely successful at capturing the lion's share of the gain from productivity improvements. Since 2001 productivity has been rising at an annual average of 4.1 per cent, while compensation growth has averaged just 1.5 per cent, leaving workers with just over a third of the benefit from rising efficiencies.
In the previous seven business cycles, by contrast, workers reaped about 75 per cent of the benefit of increasing efficiencies. "Businesses have clearly managed to gain the upper hand," says Lawrence Mishel, president of the Economic Policy Institute, a Washington think- tank.
Wage rises have been relatively lacklustre across the income spectrum. White-collar workers got the better of their blue-collar comrades in the year to March, but only just, seeing their wages rise by 2.5 per cent compared with 2.3 per cent.
While the discomfort has been spread relatively evenly, it is likely to have been most keenly felt among low-income earners.
For most middle- and upper-income families, disappointing wage growth has been more than offset by bumper gains in property values, which have increasingly been unlocked for spending.
Meanwhile, advocacy groups believe stagnating wages are starting to have a visible effect on low earners.
"We have been noticing that low earners are increasingly having to fall back on services intended for the unemployed," says Marc Cohan, a director of the Welfare Law Center. "Even some full-time workers in light construction or factory work are finding themselves using food stamps and soup kitchens."
So what has shifted the balance? Although the labour market has clearly been improving, companies may still feel there is an abundance of workers to draw on. By this stage in an economic recovery, the US economy would typically generate 300,000 jobs a month.
But even April's bumper gain of 274,000 jobs failed to match that. The monthly average for the past year has been just 181,000. The labour force participation rate - though rising recently to 66 per cent - is still well down on its peak of 67.3 per cent in April 2000.
"This may reassure companies that there are workers waiting in the wings to re-enter the labour market when necessary," said Alan Ruskin, director of research at 4Cast, a consultancy. In addition, workers may have been sacrificing higher salaries to hold on to benefits. Healthcare costs, for example, have soared.
Linda Knighten, a cook for a hotel in San Francisco, was locked out of work along with her colleagues last winter in a dispute over health benefits. "We have been fighting so hard, that the issue of pay fell by the wayside," she says.
But other problems for workers may have damaged their bargaining position over the longer term.
One is globalisation. So far all the evidence suggests that few have lost their jobs due to offshoring. Of more than 182,000 US workers fired in mass lay-offs at the start of 2004, just 2.5 per cent of the jobs were relocated overseas.
Even so, some economists believe the mere threat of offshoring may have been a significant factor keeping wage growth small. "It may be the case that job insecurity due to cases of offshoring has been making workers slightly more timorous in negotiating wages," says Paul Ashworth, US analyst at Capital Economics, the consultancy.
Wage negotiations have increasingly become an individual rather than a collective affair. Back in 1983, 20 per cent of workers were represented by a union. But trade union membership has since fallen, to 12.5 per cent of the workforce in 2004, from 12.9 per cent in 2003. This is largely because manufacturing, the traditional stronghold of unions, has been declining. But unions also believe that companies have become increasingly forceful in preventing collective bargaining.
Recent research at Cornell University suggested that 75 per cent of businesses, when faced with the prospect of unionisation, had hired anti-union consultants, while one-quarter had fired pro-union activists, and one-third had offered special favours to workers opposing collective bargaining.
Until companies start finding it harder to get workers, it will be hard to tell whether the weakness in wages has been merely a short-term cyclical problem or a longer term trend.
But many economists believe that US companies need to be a little more generous if economic growth is to remain strong.