Everything's booming, except pay

Neck rubs and free lunches for workers are stand-ins for big raises, as employers cope with a drum-tight job market.

By , Staff writer of The Christian Science Monitor

In one of the tightest labor markets in US history - a time when companies are so desperate for workers that they're forgoing drug tests, doling out company cars, and giving mammoth signing bonuses - many American businesses have so far refused to do one obvious thing: grant big pay raises.

This reluctance to boost wages, despite enormous market pressure to do so, may be one of the reasons inflation has stayed at low levels, at least until now. But there are signs that salaries are creeping up - a development that is stirring heated debate over whether it will add to inflationary pressures and, perhaps, end the economic boom.

From America's cubicles and plant floors, it's difficult to tell how hard people are pushing for fatter paychecks. After all, many workers are getting a smorgasbord of perks, if not big pay raises.

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Take Matt Coffin, president of a Los Angeles startup called LowerMyBills.com. He offers stock options. He reimburses every worker's lunch and dinner. He's just installed a ping-pong table. And once a week, the company's 20 staffers kick back with a professional massage in their offices - all on Mr. Coffin's tab. "I'm going out of my way to make people happy, because as soon as you get somebody good, you've got other guys trying to steal him," he says.

America has never seen a job boom quite like this. Sure, high-tech jobs went begging in Massachusetts in the 1980s. Many areas experienced worker shortages in the 1960s.

But this labor crunch is so deep and so wide, say some analysts, that it's forcing bosses and workers to negotiate a new social contract - one in which employees give up the security of a guaranteed lifetime job in return for things like flexible hours, better working conditions, or more-interesting work.

In this scenario, it's possible for a tight labor market and low inflation to coexist.

"Low unemployment needn't be an inflationary force anymore," says Bruce Tulgan of RainmakerThinking Inc., a workplace research, training, and consulting firm based in New Haven, Conn.

Indeed, many economists are pooh-poohing the notion that a worker shortage will boost wages and spark inflation, driving the economy into a ditch.

"That's sort of the official rhetoric," says Daniel Mitchell, professor of management and public policy at the University of California at Los Angeles. "But a lot of people are saying: 'Wages go up, but we don't have to worry that much.' "

This month, the Federal Reserve released its Beige Book, a periodic update from its regional banks, which assesses labor markets and wage pressures. It notes shortages of nurses in St. Louis and Minneapolis, restaurant and retail workers in Kansas City, and computer-trained employees all over the place. In February, unemployment stood at 4.1 percent - the fifth straight month the rate has stayed below 4.2 percent.

Pay raises, meanwhile, are moderate: In Minneapolis, for example, wages rose only 2 to 4 percent in the past year. In Kansas City, wage pressures have actually eased a bit from late 1999, the Fed report says.

Economists propose various theories for why pay isn't going up faster. Some suggest that workers are getting paid in ways that aren't represented in the statistics. For example, when a Chicago window-replacement firm offers a $5,000 signing bonus to anyone with sales experience, that doesn't necessarily get captured in pay-scale data. Neither do stock options that increasingly are the bread-and-butter come-ons of high-tech firms.

But a key factor, no doubt, is that employers resist bumping up base pay.

"Wages are employers' last resort," says Professor Mitchell of UCLA. "They look for every other thing: 'We'll recruit harder, we'll train people, we'll do all this before we'll raise anybody's wages.'"

But something's got to give eventually, several analysts argue.

"I do sense we're on the verge of seeing a sustained rise in the level of wages," says Mark Zandi, an economist at RFA Dismal Sciences, a consulting firm in West Chester, Pa. He points to recent large settlements with labor unions, such as the New York City transit workers. "The fact that [labor unions] are flexing their muscle means they feel they're in an advantageous position."

Such wage hikes don't necessarily cause inflation if workers are becoming more productive in their jobs. So far in this boom of the '90s, the nation's big strides in output per hour have accommodated rising salaries.

Can it continue? Alan Greenspan, chairman of the Federal Reserve, worries that it can't.

"At some point in the continuous reduction in the number of available workers..., wage increases must rise above even impressive gains in productivity," he warned in a recent speech. "This would intensify inflationary pressures or squeeze profit margins, with either outcome capable of bringing our growing prosperity to an end."

Even if a new social contract is being forged between worker and employer - a matter of much debate - that adjustment feels unsettling to many on both sides.

"These challenges are so daunting that many employers are panicking publicly," says Mr. Tulgan. In fact, workers' increasing willingness to give up job security, hone their job skills, and hop from one company to another means that people are far more likely to be paid what they're worth than in the old days of climbing the corporate ladder.

So far, this job boom suggests something has fundamentally changed.

"If you have this tight of a labor market, surely, surely you would be pushing prices up. [But] it's not happening," says Louis Gasper, a professor at the University of Dallas in Irving, Texas, and former senior economist for the US Senate Finance Committee and House Banking Committee. "If people are paid more, it's because they're producing more and the economy is growing more."

(c) Copyright 2000. The Christian Science Publishing Society

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