Sacramento Bee (California), September 11, 2006, Monday

Copyright 2006 Sacramento Bee
Sacramento Bee (California)

Distributed by McClatchy-Tribune Business News

September 11, 2006 Monday

SECTION: BUSINESS AND FINANCIAL NEWS


HEADLINE: State's wages pose a riddle

BYLINE: Mehul Srivastava, The Sacramento Bee, Calif.

BODY:
Sep. 11--As workers and labor economists paused last week to take stock of the previous year, both were faced with a conundrum -- for some reason, even though workers were producing more than they had last year, they had not actually seen their real wages increase.
In fact, in California, workers have seen their wages mostly stagnate during a period of increased economic growth, mirroring a six-year national trend that has some economists baffled, according to various analyses of recently released U.S. census data.
At the same time, while wages here and nationwide have shown relatively insignificant growth, workers' productivity -- which measures efficiency as output per hour of work -- has grown substantially, a phenomenon that economists say is rare.
This gap -- between rising productivity and not-rising wages -- has led to some head-scratching among economists. What is it about this recovery, they ask, that's so unique? Is it a combination of new technology, weak labor unions and the growth in low-paying jobs that has created such an economic oddity? Or could be it something else? And though data released last week suggest pay increases may be gaining some traction -- wages outpaced inflation by a little over 0.3 percent from April to June -- no one is predicting a significant reversal anytime soon.
"It remains a puzzle," said Arindrajit Dube, an economist with the University of California, Berkeley, who has crunched these numbers annually. "This is the fifth year of the recovery and we have yet to see economic growth translated into a bigger paycheck for workers."
In previous periods of economic prosperity, wages grew hand-in-hand with productivity, said Deborah Reed, an economist at the Public Policy Institute of California. For instance, the boom of the late 1990s led to an increase in wages across all income levels, in effect becoming a "tide that raised all boats."
But between 2000 and 2005, workers' productivity went up by 16.6 percent whereas their wages rose by only 7.2 percent, according to U.S. Labor Department statistics. And inflation cancels out most of those wage gains. It didn't get any better between June 2005 and June 2006, either -- real wages dropped 0.8 percent.
One of the reasons why workers have not seen their wages increase might be tied to the kind of jobs the recent economic growth has created, said Richard Hurd, a labor relations professor at Cornell University.
The nation's largest private employers in the past few years, he said, were Wal-Mart and Manpower International. While Wal-Mart hired mostly low-income workers, Manpower International hired temporary workers -- both categories in which the potential for wage growth is not large.
"If you look at the economy like that, you find families with real income falling because the kind of jobs that they are able to find are just not lucrative," he said.
At the same time wages have stagnated, corporations have seen their incomes and their profits go up. Dube, the Berkeley economist, said that pre-tax corporate profits went up 9.5 percent between 2004 and 2005, and up 39 percent nationwide since 2002, according to his analyses. A separate analysis by the California Budget Project of the Franchise Tax Board's data showed a more striking 368 percent increase in corporate income since 2000.
While economists say it would be simplistic to argue that corporations have profited at the expense of paying better wages, they do find it troubling that wages now make up the smallest share of the national gross domestic product since 1947.
"(Wage stagnation) reflects a loss in workers' bargaining power," Dube said. "There is increased anxiety in workers, be it from off-shoring outsourcing or other reasons."
Even Sacramento's relatively robust economy has not been exempt from the wage stagnation trend. Although the area has seen a marked increase in the number of jobs added since 2000 -- among the fastest-growing large metropolitan areas in the country -- wage increases have not been substantial, said David Lyons, a labor economist at the California Employment Development Department.
Lyons said increases in productivity aren't necessarily because people are working harder, but also because of increased mechanization and automation of jobs.
"In almost every job, computers have found a way to make workers more efficient," he said.
According to Labor Department statistics, only those at the top level of incomes -- above $100,0000 annually -- have, over the past five years, been able to outpace inflation consistently.
As economists attempt to explain this wage stagnation, one of the reasons they point at is the decline in membership in labor unions.
"Lower unionization is not all of it, but it is certainly part of the problem," Hurd said.
On average, in California, a unionized worker makes about 30 percent higher wages than a nonunionized worker, according to the California Budget Project.
"Lower unionization, decreased confidence in the economy and the kind of jobs people are working -- all of that makes it difficult for the average worker to ask for a wage, or change jobs to look for better wages," Hurd said.
In spite of that, it remains unclear to economists why exactly wages are lagging behind productivity. Most see it as a period of adjustment, rather than a permanent situation and Dube said many of them are hopeful that the trend will soon change.
"One hopes it will," said Dube. "This is the third year I am making this prediction, and every year I say, well, gee, if unemployment falls any lower, the market may tighten."
But California's unemployment is unlikely to fall much further. Even the proposal to boost the minimum wage won't keep up with inflation.
"The question we are left with is, what will be the source of wage gain?" said Dube.
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