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1/21/2005

2004: Wages Dropped

Last year—2004—was the first year with job growth in every month since 1999, and the first year that the jobless rate declined since 2000.1 Yet the labor market remained relatively slack, and despite the reversal in job growth, there was little pressure on employers to raise wages. Thus, as the figure below reveals, wages grew more slowly in 2004 than in the previous year. In fact, the 2.1% growth rate for nominal hourly earnings in 2004 is the lowest in the history of this wage series, which began in 1964 (the series is for the 80% of the workforce who are either blue-collar manufacturing workers or non-managers in services).

At the same time, inflation grew more quickly last year, accelerating from 2.3% in 2003 to 2.7% in 2004. Clearly, faster price growth in 2004 was not a function of tighter labor markets leading to wage pressures that fed back into higher prices. Instead, prices grew more quickly due to the increased cost of commodities such as energy and health care.

This pattern of decelerating wage growth and faster price growth led to the first real decline in the annual hourly wages of production, non-supervisory workers since 1993. Thus, any real income growth these families achieved last year was a function of more work at lower hourly wages.

Another problem that the media and even the AFL-CIO failed to notice was the rise in the amount of jobs which provide "production-based", "incentive-based" and other psuedo-commission pay instead of hourly wages. Staffing firms like ACS and others are finding this work around to help employers to rip workers off. While not all staffing firms are using this method it is still setting a standard business model that will probably be followed.

The recovery is no longer jobless, but the benefits of the growing economy are still failing reach many working families.

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