Workers Feeling the Squeeze

Posted on April 12, 2005

The Los Angeles Times leads today with a pithy little piece about how American workers are increasingly unable to afford the rising costs of gas, rent and food because of the stagnation of wages.

This is the first time that salaries have increased more slowly than prices since the 1990-91 recession. Though salary growth has been relatively sluggish since the 2001 downturn, inflation also had stayed relatively subdued until last year, when the consumer price index rose 2.7%. But wages rose only 2.5%.
The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average.
Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down....
But higher wages could hurt the economy by stoking inflation further. Employers might pass the costs on to consumers in higher prices, and that in turn might prompt the Federal Reserve to raise interest rates more aggressively, possibly slowing the recovery or even triggering a recession.

The official unemployment rate of 5.2% is not bad, although it fails to count the large number of underemployed and those that have dropped out of the job market entirely. And employers are screaming about how much it costs to hire new people. So what's the real problem here? You guessed it: the out of control healthcare costs.

With benefits factored in, workers' total compensation did outpace inflation in 2004, even if they didn't see it in their paychecks. But employers also are requiring workers to pay a greater share of their premiums.
"Healthcare has eroded the wage base," said Janemarie Mulvey, chief economist with the Employment Policy Foundation, a business-funded think tank in Washington.

Of course, some common sense ways to get healthcare costs under control, such as allowing the government to negotiate prices for Medicare prescription drugs, are unavailable because the drug company lobby made sure that a prohibition against the government negotiating drug prices was written into the new Medicare law. And rising drug prices are going to continue fueling the healthcare costs.

As for private employers, they will simply shift more of the cost of health insurance to their employees -- or stop offering coverage at all. Meanwhile, look for gas prices to continue to rise at the pump. None of this bodes well for the American middle class.