Wage Deflation
by bruh3, Wed Oct 14, 2009 at 05:20:54 AM EDT
This will be a brief diary on an economic issue that should be a topic of growing concern.
One of the bad things that is coming out of an economy of long term systemic underemployment and unemployment is the potential for wage deflation at the same time that the cost of benefits like health care insurance will rise steeply for employees that have jobs are or are obtaining them.
The wages are still climbing, but the potential is there:
"For now, pay is still rising--a little less than 2% for the year through June 2008, according to the government's employment cost index. But the weak job market is creating the perfect conditions for a decline in pay: low inflation and high unemployment (9.7% in August). With a huge reserve army of unemployed--more than 2 million of them college-educated--it would be easy for many employers to demand concessions."
http://www.businessweek.com/magazine/con
tent/09_40/b4149032652510.htm
There are already signs:
"Colorado plans to lower its minimum wage next year because of falling inflation rates, becoming the first state in the nation do so.
The state's Department of Labor and Employment said Tuesday that it planned to lower the minimum wage to $7.24 from $7.28, after an August federal consumer price index report showed that the cost of living had fallen in the state. A public hearing on the issue is set for next month."
http://www.nytimes.com/2009/10/14/us/14c olorado.html?_r=1
There is also this:
"In recent decades, layoffs were the standard procedure for shrinking labor costs. Reducing the wages of those who remained on the job was considered demoralizing and risky: the best workers would jump to another employer. But now pay cuts, sometimes the result of downgrades in rank or shortened workweeks, are occurring more frequently than at any time since the Great Depression...
The Bureau of Labor Statistics does not track pay cuts, but it suggests they are reflected in the steep decline of another statistic: total weekly pay for production workers, pilots among them, representing 80 percent of the work force. That index has fallen for nine consecutive months, an unprecedented string over the 44 years the bureau has calculated weekly pay, capturing the large number of people out of work, those working fewer hours and those whose wages have been cut. The old record was a two-month decline, during the 1981-1982 recession."
http://www.nytimes.com/2009/10/14/busine ss/economy/14income.html
Nor is the unemployment outlook likely to help anytime soon:
"Job losses are expected to continue at least into the middle of next year, likely driving the unemployment rate above 10 percent from 9.8 percent last month. It could take three or four more years for it to fall to normal levels."
http://www.google.com/hostednews/ap/arti cle/ALeqM5jcSmCrlwyfg6Ryv_S_ZnzazNnaSgD9 B9M3480
The issue is not simply limited to wages. As wages are deflating, other costs for workers like health insurance are set to rise. Regarding health care, one paper writes:
"Such price increases have become a fact of life during open-enrollment season, when workers sign up for their health plans. But the jump is expected to be steeper in 2010 than this year, as employers struggle with the impact of the recession and continually rising insurance costs. Employees will pay $4,023 on average in premiums and out-of-pocket charges next year, up 10% from 2009, according to a projection from Hewitt Associates, a benefits-consulting firm. In dollar terms, it's the biggest boost since the firm started keeping track of the data a decade ago.
For workers, that will mean larger payroll deductions, as well as spending more on co-payments and other fees tied to care. Companies also are expected to prod more employees into cheaper coverage by getting them to sign up for high-deductible health plans. And many employers are trying to rein in the expense of covering workers' families, sometimes by making insurance for kids and spouses pricier."
http://online.wsj.com/article/SB10001424 052748703790404574471290259603238.html
Thus, leaving the American worker falling potentially even further behind considering wages were already stagnant before the Great Recession. Employment, including under employment, is a potential economic crisis that President Obama and the Democrats must tackle soon.
Tags: Wage Deflation (all tags)
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