Wages fell for the average worker in 2004 after adjustment for inflation, the
first decline in nearly a decade, the New York Times reports.
In 2004, inflation-adjusted wages, or real wages, dropped 0.5 percent among
nonsupervisory workers in the private sector, according to the Bureau of Labor
The fall in real wages occurred even as the economy saw gains in employment
"Pay increases are not rebounding, even though the factors normally associated
with higher pay have rebounded," says Peter LeBlanc of Sibson Consulting.
For now, the average worker is seeing bigger increases in consumer prices than
in wages. While some observers are concerned that the trend could be a long-term
one, others say it is only a short-term problem.
"What we're seeing now is not atypical; employers can't pay the wage bill
to keep up with the oil price increase," says Allan H. Meltzer, an economist
at Carnegie Mellon University. "I think the long-term trend will be that
wages will right themselves and look like productivity growth on average."
The newspaper reports that a bigger gap has developed between productivity
gains and wage increases since 2001. In that period, compensation rose about
one-third as fast as productivity, according to the newspaper. Over the previous
seven business cycles, including the boom of the late 1990s, compensation rose
about three-fourths as fast as productivity.
"To produce real wage gains now, it takes sustaining a very tight labor
market," says Thomas A. Kochan, an economist at the Massachusetts Institute
of Technology. "Without that, we're going to continue to see what we're
seeing now: abysmal growth in real wages."