Tuesday, January 23, 2007

The Bureau of Labor Statistics last week issued its report on inflation-adjusted earnings for December 2006. Compared to a year earlier, average real hourly earnings increased by 1.7 percent for nonsupervisory and production workers (or 80 percent of the private-sector work force, which is an estimated 114 million). It was the first time in three years that real earnings had increased for these workers.

Indeed, before the average price of gasoline began plunging from $3 per gallon in August to $2.36 per gallon by December, which ratcheted down the inflation rate and increased the purchasing power of nominal wages, the average wage in August was about 1.5 percent below its level in December 2002. The Bush administration was understandably concerned over the fact that real hourly wages had declined during 2004 and 2005 despite the fact that the unemployment rate had been falling from 6 percent in 2003 to 5.5 percent in 2004 and 5.1 percent in 2005. The unemployment rate in 2006 averaged 4.6 percent.

During the first six years of the Bush administration, average real hourly earnings for these nonsupervisory and production workers increased a cumulative 3.3 percent, representing an average annual increase of a little more than one-half percentage point. Between 1995 and 2000, average hourly wages had risen more than twice as fast, advancing a cumulative 7.3 percent (or an average of nearly 1.2 percent a year).

Crawling wage growth for nonsupervisory and production workers during the Bush administration (3.3 percent) has occurred in an environment of soaring productivity. In the nonfarm business sector, productivity increased by 17.8 percent from the end of 2000 through the third quarter of last year. Thus, productivity has increased more than five times as fast as wages for these workers. The benefits of this favorable trend are going somewhere, and it appears that the destination is corporate profits.

As the Center on Budget and Policy Priorities recently reported, wages and salaries (including the salaries of managers, which the BLS excludes in its calculation of real hourly earnings) have grown at a 1.7 percent average annual rate during the current economic recovery, which began in November 2001. By contrast, corporate profits have been expanding at a 13.7 percent average annual rate during the current economic recovery. That’s nearly 75 percent faster than the average annual growth rate of profits (7.9 percent) during previous postwar recoveries. As a result, the share of national income going to corporate profits is at its highest level since 1950, while the share of national income going to wages and salaries remains at its lowest level on record. which goes back to 1929. The trends partly explain why President Bush’s job-approval rating has fallen below 30 percent, reaching its low point during his presidency.

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