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Get Four
|  | JANUARY 17, 2006
By Michael Mandel Where's the Wage Growth?As unemployment inches down, people's paychecks should be getting fatter. It's not happening yetNow that 2005 is over, it's time for my first annual end-of-year wage wrapup. Who did well -- and who didn't? Let's look at the big picture first. The unemployment rate for December was only 4.9%, a figure that generally signals a strong labor market, and productivity is rising at a 3.1% annual pace. That combination is a recipe for good wage growth. In the 1990s, for example, pay didn't start to accelerate until the unemployment rate dipped below 5% in the middle of 1997. After that, workers at all ends of the income scale saw decent gains through 2002. I'm expecting to see the same sort of uptick in 2006. Unfortunately, it isn't happening yet. The best we can say right now is that the economy has pockets of strength, notably in some job categories benefiting from the housing boom, the broad tech sector, and Wall Street, which is enjoying sky-high bonuses for 2005. WHY FOLKS ARE SOUR. Most people, however, have been lucky to keep up with inflation. Look at a new set of wage numbers buried deep in the Web site of the Bureau of Labor Statistics. These data report fourth-quarter median weekly earnings of full-time wage and salary workers for different occupations (median means that half earn more, and half earn less). The first thing that jumps out is that both the 3.2% yearly wage gain for managers and the 2.4% gain for professionals fell short of the 3.5% increase in the consumer price index. That goes a long way to explain why people are so sour about the economy. Strong growth and low unemployment don't mean much if your buying power is declining. Also not keeping pace with inflation were those who work in service occupations (a broad category that includes police and firefighters, cooks, janitors, home health aids, hairdressers, and child-care workers), production occupations, and maintenance and repair occupations. HOUSING HELPED. Even some of the good numbers are deceiving. Most of the occupations that did well in terms of wages in 2005 were bouncing back from a terrible 2004. For example, sales occupations turned in a 6.7% gain in wages in 2005 -- but that followed a 1% decline in 2004. Roughly the same pattern held for "transportation and material moving occupations" -- think truck drivers. In some areas of the economy, wages have gone up. Look at a different set of numbers, the detailed industry data on hourly earnings for nonsupervisory and production workers. These are workers who are not, in the words of BLS, "primarily employed to direct, supervise, or plan the work of others." In manufacturing, they also have to be directly concerned with production. Roughly 80% of the private workforce falls into this category. It's clear that the housing boom has helped jack up wages for some people. Hourly pay in the mortgage and nonmortgage loan industry, for example, rose by a hefty 21.6% over the past year (this number averages out September, October, and November, and compares it to the average of the same three months in 2004). Other winners include workers at interior design firms (11.8% gain), home furnishings stores (9.6%), makers of manufactured and mobile homes (7.6%), architectural services firms (6.1%), wholesalers of lumber and construction supplies (5.6%), and general contractors for new single-family homes (5.1%). COUNTY VS. COUNTY. The tech sector has seen some wage gains as well, as I've discussed extensively in my Economics Unbound blog. For example, the BLS reports that wages went up for workers in online and mail-order shopping (10.7%) and computer and camera stores (10.2%). Telecom wages went up by 5.9% -- their biggest gain since 2003. And the broad area of computer systems designs and related activities, a good proxy for programming wages, enjoyed a 5.1% gain. There's no denying, however, that the wage gains in tech have been spotty -- not just by industry but geographically. For example, weekly pay in Santa Clara County -- the heart of Silicon Valley, and home to Intel (INTC ), Google (GOOG ), and Yahoo! (YHOO ), among others -- rose by only 1.8% in the second quarter of 2005 compared with a year earlier, according to a new report from the BLS. But just to the north, wages in neighboring San Mateo County, headquarters for companies such as Oracle (ORCL ) and Genentech (DNA ), jumped by 10.6% over the same stretch. In some broad areas of the economy, even big leaps in productivity haven't translated into wage gains. The most obvious is the grocery industry, where output per hour increased by a spectacular 5.8% in 2004, the last data available. Nevertheless, wages in the industry have been falling, with a 0.6% decline in 2005 over the past year. And wages in department stores rose only 1.1% in the same period. TEMP BUST. The explanation in both cases is probably the same: Wal-Mart (WMT ) and the other big discounters have revolutionized the grocery and general merchandise business, driving up productivity but also putting downward pressure on wages. Perhaps the most disturbing number is the meager 1% increase in the hourly pay for the 2.6 million people working for temporary-help firms. This small gain hardly compensates for the 3.8% and 2.9% declines in 2004 and 2003, respectively. Taking inflation into account, wages for temp workers peaked in 2002 and are now actually lower than they were in 1996. All in all, 2005 was a depressing year for wages. Here's hoping for a better 2006.  Mandel is chief economist for BusinessWeek. To participate in an ongoing discussion about wages and the economy, visit Mandel's blog at http://www.businessweek.com/the_thread/economicsunbound
BW MALL
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