Working Class Gets First Raise in Years
Wages are starting to rise - in some cases more than at any time since the 1960s.
For the first time in nearly a decade, the real wages of average workers are starting to rise - putting more money in the pockets of millions of Americans from Miami to Seattle.Skip to next paragraph
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While the gains are not enough to allow anyone to purchase a bungalow in Bermuda, they represent some of the biggest increases in living standards in 30 years for lower-income America - a group left out of the "golden" economy of the mid-1990s.
In other economic expansions since World War II, workers saw their wallets swell quickly. But not in the recovery that began in early 1991. Most have seen their paychecks shrink after inflation. Until now.
"The average guy hasn't had it this good in decades," says Bruce Steinberg, chief economist for Merrill Lynch & Co. in New York.
The shift in wages is evident at Clean Edge, a janitorial service in Needham, Mass., a western suburb of Boston. It now offers $7 an hour when advertising for new employees. A year ago the firm offered $6 an hour.
"It's due to things being good and there being plenty of jobs out there," says Keith Wilson, owner of Clean Edge. "I attract more calls at $7 an hour than $6."
The tighter labor market is noticed by both statisticians and much bigger employers than Mr. Wilson, with his eight employees:
* The Bureau of Labor Statistics in Washington reports that wages and salaries were up 3.3 percent in the year ending in June. Total compensation, which includes such benefits as health and pension costs as well as wages, was up 2.9 percent. Both increases beat the rise in the consumer price index of 2.5 percent in the same time.
* Using a different calculation, Mr. Steinberg finds a 2.2 percent gain in real wages in the past 12 months.
* Michael Calabrese, an analyst at the Center for National Policy, a Washington think tank, estimates real compensation is now back to its 1989 peak before the last recession. But it isn't back to 1985 levels.
"We feel that same modest growth in wages," says Carl Camden, an executive vice president at the headquarters of Kelley Services in Troy, Mich., one of the nation's largest providers of temporary workers.
Moving up from low rungs
Even workers near the bottom of the income ladder are racking up better wages.
"Low-wage workers were taking it on the chin for the last 15 years," says Jared Bernstein, an economist at the Economic Policy Institute, another Washington think tank. "But there have been broad-based wage gains over the last year."
By his estimate, a man who made $7.20 an hour a year ago is now making $7.27 in constant dollars - not enough to buy a family yacht but movement in the right direction. A woman at the same point on the income ladder has seen her hourly wage rise less, to $6.07 from $6.05.
Some wages might be rising even more, but employers are using other methods to keep and attract workers in today's tight labor market. Because of the competition for low-skilled workers in Boston, for instance, Wilson at Clean Edge is providing health insurance as a way to retain workers.
In other cases, the demand for workers is causing dramatic increases in pay - especially at the low end of the wage scale. To avoid the cost of hiring and training new workers, Mr. Camden at Kelly Services says more employers are adopting "retention programs." They may give employees a boost in hourly pay, say 30 cents, after they have stayed on the job for 60 or 90 days.
Low-paid workers, often getting few benefits, have little to lose in changing jobs. When in short supply, they are willing to jump jobs quickly for an extra 50 cents or $1 an hour. With higher-paid employees, companies are more often offering bonuses to workers who stay, for example, a year, or to the end of a project, Camden says.
Another factor boosting wages at the low end has been the hike in the federal minimum wage. The minimum rose from $4.25 an hour to $4.75, effective Oct. 1 last year, and will go to $5.15 an hour Sept. 1. It is the first increase since 1991.
Labor Ready, a temp agency with 300 branches across the country, will probably have to boost wages again in September to stay above the minimum, says Thomas Stanich, director of human resources at its Tacoma, Wash., headquarters.
The company specializes in providing temp workers for light industry, carpenters' helpers, landscape workers, cleanup crews, and other low-skilled workers.
"As long as we are competitive, we are able to find workers," says Mr. Stanich. For him, that means keeping wages somewhat above the legal minimum.
Downside for workers
But not all is rosy for workers.
The proportion of jobs providing workers with health insurance or retirement benefits is shrinking, says labor economist James Medoff. That's largely because most new jobs are in the non-union service sector. These jobs are less likely to offer good fringe benefits than unionized manufacturing jobs.
"The social ramifications are quite significant," says the professor at Harvard University in Cambridge, Mass. Government will face political pressures arising as more and more workers in the bottom half of the labor force lack health and retirement coverage.
Significantly, the shrinkage in fringe benefits, along with growth in productivity, helps explain why inflation hasn't been rising despite the wage increases and why many companies are recording a sixth straight year of double-digit profit growth, notes Professor Medoff.