Americans revel in wage boom
All workers, especially women and minorities, 'cash in' at last on goodeconomy.
After decades of falling farther behind the well-to-do, America's lower-paid workers have scored big income gains in the past three years.
Further, they and other Americans are spending every additional penny, and more.
The economy finally is generating a great evening out. The lowest-income Americans have gained more, by percentage, than have middle- and high-income workers. Women have gained more than men. Blacks and Hispanics have done especially well.
"American workers are finally cashing in on this recovery," says Jared Bernstein, an economist with the Economic Policy Institute in Washington. "For most workers, current conditions are helping them to dig out of a hole that is two decades deep."
Today's economic expansion began in March 1991. By now it is the longest ever in peacetime. But it was slow to pick up steam.
For a long time. income gains flowed disproportionately to the already well-to-do. Not until about two years ago did the average worker begin to see real gains in income.
New statistics for 1998 are especially cheerful. Average income rose a husky 5 percent last year, the fourth consecutive year at or above that rate, the Commerce Department noted Feb. 1. That included a 6.7 percent increase in wages and salaries.
Moreover, inflation - a bugaboo that used to appear whenever wages rose rapidly - is nowhere in sight.
For a president beset by an impeachment trial, the news is a wonderful gift. President Clinton will trumpet the greater prosperity in his forthcoming annual economic report. In it, his Council of Economic Advisers will include a chapter on the economic gains made by individual Americans.
"Americans are better off," says Lee Price, chief economist at the Commerce Department in Washington. "A major benefit of a tighter labor market is that it improves income distribution." He adds, "And employers do more training of the workers they have got. Blacks and Hispanics benefit disproportionately."
Employer contributions to pensions, health plans, and other benefits grew more slowly. One reason is that rising stock prices meant companies had to put less money into their pension plans to keep them solvent.
But just as earnings jumped for virtually all Americans, so did spending. In fact, so many consumers were writing checks last year that they caused spending to bump up 5.7 percent, the largest rise since 1994. That's more than income grew. People used their income and savings to buy big-ticket items, such as cars, homes, furniture, and appliances.
FEDERAL Reserve policymakers, meeting yesterday in Washington and again today, will be looking intently at such income and savings numbers. A few years ago, such rapid wage gains would have prompted a degree of fright among these powerful officials. They would have worried that higher wage costs would turn into rising prices and inflation.
But it didn't happen. Consumer prices rose only 1.6 percent in 1998. So the Fed is expected to leave short-term interest rates untouched today.
"There are no inflationary pressures," says James Galbraith, an economist at the University of Texas in Austin.
Mr. Bernstein praised the Fed for accommodating the expansion with a drop in interest rates last fall and for allowing unemployment to drop to its lowest rates in two decades. "We need to keep this thing going," he says.
Mr. Price noted another reason the Fed might want to leave interest rates unchanged. The Asian financial crisis has hit American exports, slowing US economic growth a little. In the past nine months, he notes, exports to Canada and Latin America have also flattened out. Most economists see this as one factor behind slower economic growth forecast for this year.
One reason workers have done so well in the past few years is that inflation fell below expectations. Employers gave healthy raises at the start of 1998, say 4 or 5 percent, to offset inflation plus give workers a real gain. Then inflation actually dropped.
But employers caught on to the trend. As 1998 progressed, the rate of increase in average hourly earnings slowed.
"They found they don't have to give a 4 percent wage increase to keep pace with inflation," says James Glassman, chief economist at Chase Securities Inc., a New York brokerage house.
Other reasons exist for the healthy wage trends. Bernstein credits low unemployment and the 1996-97 increase in the minimum wage. Mr. Clinton, in his State of the Union message last month, called for another hike in the minimum wage.
Gordon Richards, chief economist of the National Association of Manufacturers in Washington, says workers are benefiting from higher productivity rates. During the early 1990s, productivity was growing about 1 percent a year. In each of the past three years, it has risen to 1.8 percent. This means employers can afford to give good wage gains without their costs rising excessively.
So far, the disappearance of personal savings doesn't trouble many economists. That's because national savings as a whole, which includes government and business savings as well as personal savings, have been creeping up. Governments at all levels have largely moved into surplus. Many are considering tax cuts.
Moreover, most economists attribute the drop in personal savings to the booming stock market. Prosperous individuals, who own the bulk of corporate shares, have seen their financial balances rise to a point where some extra spending appears justified. "Wealth is rising," says Price. "People feel they don't need to save."