The incredible shrinking pay raise: Wages can't keep up with inflation

Earlier this year, some 20,000 salaried workers of Ford Motor Co., mainly in the United States and Canada, got their first hike in base pay in two years. It wasn't much: a raise of 2.7 percent, on average. But the Dearborn, Mich., automaker threw in some bonuses in 2011 and again this year.

These days, that looks downright generous.

The annual pay raise – something workers could once rely on – has become a lot more iffy in the aftermath of the Great Recession. Despite rising corporate profits, average wage hikes aren't keeping pace with inflation. Some new workers are being paid less than they would have been five years ago, by some estimates. Hourly earnings for production and nonsupervisory workers rose so little in the fiscal year ending in May that their growth rate tied a 47-year record low, government data show. Given the tight labor market, even those who have kept their jobs have had limited bargaining power on wages and benefit.

"It's a buyer's mar­ket for em-ployers," sums up Linda Bar­rington, managing director of Cornell University's Institute for Compensa­tion Studies in New York.

If pay raises continue to shrink, the trend could crimp consumer spending and overall economic growth.

Consider the government's data on salaries: For the fiscal year that ended in March, wages and salaries grew an average 1.7 percent, according to the Bureau of Labor Statistics (BLS) Employee Cost Index. During the same period, consumer prices rose 2.7 percent. And there is little relief in sight.

"We're expecting another economic slowdown in the US in the second half of this year," says Gad Levanon, macroeconomic research director at the Conference Board in New York. "With the unemployment rate declining slowly, if at all, there are still a lot of job seekers, and employers will still have the upper hand in wage determination. So I expect very low wage growth even through 2013," he says.

To be sure, workers in high-demand sectors, such as high technology or mining, can often command above-average raises, experts say. Also, current workers appear more likely to be getting a raise than new hires are. That may explain why separate private surveys – from WorldatWork, a global human resources organization based in Scottsdale, Ariz., and the Hay Group, a Philadelphia-based global management consultant – showed employers last year projecting budget increases for 2012 salaries at nearly twice the rate of the government's figures: a median 3 percent.

Even these raises are not dazzling by some historical standards. "In periods of expansion over the past decade, wage growth has been in the 3 to 5 percent range," reports Mr. Levanon. He is one of the authors of the conference board's report, "Feeling the pain: Wage growth in the United States during and after the Great Recession," published this spring.

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