Paychecks stretch instead of grow

Commentator and economist Jared Bernstein

TEXT OF COMMENTARY

Bob Moon: The leading trade union commission in Europe scolded the European Central Bank today. The ECB has expressed concerned that excessive wage growth could exacerbate inflation. The unions shot back that the collective wage agreements on the books have modest, fixed increases.

The debate in this country over wages isn't as heated, but commentator and economist Jared Bernstein says the wage crunch is every bit as real as the energy crisis that's dominating the headlines.


Jared Bernstein: If I asked you why Americans feel so glum about the economy these days, you'd say gas prices, right? That's true, of course, but it's not the whole story. Like they say in mysteries, follow the money.

Paychecks are getting hit from three sides right now. First, recessionary conditions in the job market are leading to slower growth in wages and benefits. Second, employers have cut back on workers' hours. Third, you probably don't need me to remind you, but inflation has sped up a lot lately. Even if wages and hours were holding steady, faster price growth would mean less buying power.

It's often claimed that recessions hurt those who lose their jobs, but if you dodge that bullet, you're fine. Yet recent wage data reveal that you don't have to suffer a layoff to be hurt by a downturn.

And it's not just wages. Employers' contributions to their workers pensions and health coverage are also lagging behind prices.

Now, these are recent developments. They're driven by the loss in jobs and rising unemployment, and by relentlessly climbing energy prices. But for many workers, these real wage problems are frustratingly familiar.

The weekly earnings of the median worker, the one smack in the middle of the wage scale, were essentially unchanged between 2000 and 2007. In today's dollars, that middle-income paycheck went from $694 per week in 2000 to $695 in 2007.

Let's just pause on that point for a second. The productivity of the American workforce increased quite dramatically over those years, but middle-income workers got all of a buck from that growth. They baked a bigger pie, yet the size of their slice was unchanged.

So, where'd all the growth end up? Not exactly a head-scratcher. It flowed to the top of the pay scale, and the higher up you started out, the better you did.

Policy makers take note. Yes, we have to deal with the short-term problems of the slowdown and high energy costs. But the central goal of our policy agenda must be to reconnect paychecks and productivity.


Moon: Jared Bernstein is a senior economist at the Economic Policy Institute, and the author of "Crunch: Why Do I Feel So Squeezed?"

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