Workers’ wages, benefits rise at slowest pace in three years
WASHINGTON (AP) – Last year’s recession is taking its toll on workers, whose wages and benefits rose at the slowest pace in three years in the January-March quarter. The Labor Department reported Thursday that its employment cost index – a broad measure of changes in workers’ compensation – rose 0.8 percent in the first three months of this year, down from a seasonally adjusted 1 percent rise in the previous quarter.
Companies offered less generous compensation packages as the recession that began in March 2001 battered revenues and profits. Even as the economy recovers from the slump, economists predict workers will see smaller gains in their wages and benefits.
“Employers aren’t sure whether this recovery is for real and whether it will last. Until they are confident that it is here to stay, they are not going to make big commitments in hiring or investing in projects and they are not going to really boost compensation,” said economist Clifford Waldman of Waldman Associates.
The first-quarter increase in compensation was the smallest since a 0.4 percent gain posted in the first quarter of 1999.
The wages and salaries component of the index grew 0.8 percent in the first quarter, slightly slower than the 0.9 percent rise in the fourth quarter of 2001.
“Employers are doing what they have to do to preserve profits and growth. Sometimes that means cutting salaries to salvage jobs,” said Richard Yamarone, economist with Argus Research Corp.
The unemployment rate rose to 5.7 percent in March. Many economists believe it will peak at just over 6 percent around June because companies, nervous about the recovery, will be reluctant to quickly hire back laid-off workers.
The costs of benefits – such as health insurance and vacations- outpaced gains in wages and salaries, increasing 1 percent in the first quarter.
Still, that was the smallest gain since the third quarter of 2000 and was down from a 1.2 percent increase in the fourth quarter of last year.
“Benefit costs, primarily health insurance, have heated up as a major corporate cost concern. They have increased faster than wage growth each quarter over the past two years,” said Ken Mayland, president of ClearView Economics. market situation will result in shifting more of these costs to workers …. this problem will continue to be a thorn in the side of companies.”
For the 12 months ending March, compensation went up 3.9 percent, compared with 4.1 percent for the same period a year ago.
A second Labor Department report Thursday showed that fewer Americans filed new claims for jobless benefits last week. Claims fell by seasonally adjusted 31,000 to 421,000, the lowest level in a month.
Even with the decline, a government analyst said that the level was inflated as a result of a technical fluke.
The distortion is coming from a requirement that laid-off workers seeking to take advantage of a federal extension for benefits must submit new claims.
Congress recently passed legislation signed into law by President Bush that provided a 13-week extension of jobless benefits.
Because of the refiling requirement, the weekly claims figures – usually a good proxy for layoffs – have been clouded in the past few weeks and could remain volatile.
The number of workers continuing to receive unemployment benefits, however, dipped to 3.7 million for the work week ending April 13.
That encouraged some economists.
In a third report, sales of previously owned homes, coming off the two highest months on record, fell 8.3 percent in March to a seasonally adjusted annual rate of 5.40 million, a still-robust level of activity, the National Association of Realtors reported. The level of sales in March was the sixth strongest on record.
Given the fledgling recovery, many economists believe the Federal Reserve will leave short-term interest rates – now at 40-year lows – unchanged when its meets May 7. The Fed cut rates 11 times last year to rescue the economy from recession.
—
On the Net:
Employment costs report: http://www.bls.gov/
Jobless report: http://www.doleta.gov/
Homes’ report: http://www.realtor.org/