Inflation has outpaced the rise in salaries for the first time in 14 years.

[tex]

http://www.latimes.com/business/la-fi-wages11apr11%2C0%2C5092199.story?coll=la-home-headlines

Wages Lagging Behind Prices

# Inflation has outpaced the rise in salaries for the first time in 14 years. And workers are paying a bigger share of the cost of their healthcare.

By Nicholas Riccardi, Times Staff Writer

For the first time in 14 years, the American workforce has in effect gotten an across-the-board pay cut.

The growth in wages in 2004 and the first two months of this year trailed inflation, compounding the squeeze from higher housing, energy and other costs.

The result is that people like Victor Romero are finding themselves falling behind.

The 49-year-old film-set laborer had to ditch his $1,100-a-month Hollywood apartment because his rent kept rising while his pay of $24.50 an hour stayed flat.

"There's no such thing as raises anymore," Romero said.

This is the first time that salaries have increased more slowly than prices since the 1990-91 recession. Though salary growth has been relatively sluggish since the 2001 downturn, inflation also had stayed relatively subdued until last year, when the consumer price index rose 2.7%. But wages rose only 2.5%.

The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average.

Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down.

Some see climbing profits and stagnant wages as not only unfair but also ultimately unsustainable. "Those that are baking the larger pie ought to see their slices expanding," said Jared Bernstein, an economist with the liberal Economic Policy Institute in Washington.

But higher wages could hurt the economy by stoking inflation further. Employers might pass the costs on to consumers in higher prices, and that in turn might prompt the Federal Reserve to raise interest rates more aggressively, possibly slowing the recovery or even triggering a recession.

For now, workers' wallets are being pummeled by something of a perfect storm of economic forces: a weak job market, rising health insurance premiums and other inflationary pressures.

The biggest factor is the slack employment market, which means there is little pressure on businesses to boost pay. "They take advantage of you because there's no work and anyone will work for anything," Romero said.

Although the unemployment rate has dropped to a relatively low 5.2%, that figure doesn't count the hundreds of thousands of jobless people who've given up their searches and dropped out of the labor market at a greater rate than anytime since 1988. At the same time, the cost of health premiums has skyrocketed, eating into the pool of corporate cash set aside for raises. Although pay rose only about 2.4% last year, benefit costs jumped almost 7%.

With benefits factored in, workers' total compensation did outpace inflation in 2004, even if they didn't see it in their paychecks. But employers also are requiring workers to pay a greater share of their premiums.

"Healthcare has eroded the wage base," said Janemarie Mulvey, chief economist with the Employment Policy Foundation, a business-funded think tank in Washington.

"In the long run, we can't continue like this. If healthcare keeps crowding out wages forever, something's got to give."

The squeeze is especially intense on the 47% of the workforce whose employers don't directly provide their health insurance. For lower-income workers, who are more likely to be uninsured, the falling value of their wages is even more serious because they're more likely to live paycheck to paycheck. And rising food and energy prices take a proportionately higher toll on the poor than on the rich.

Historically, periods when wage growth is outpaced by inflation rarely last more than 18 months. That's partly because businesses don't want their employees' living standards to fall, as that injures morale, said Trewman Bewley, a Yale University economist who has studied wage activity during economic downturns.

Many economists figure it's only a matter of time until workers can pry more money out of their employers to catch up to inflation again. If economic growth remains robust, as many forecasters predict, workers may gain greater leverage to negotiate wage hikes.

"Chances are that those workers that have problems getting by because of higher fuel prices will probably tell their employers, 'I can't make it,' " said John Lonski, chief economist at Moody's Investors Service.

That hasn't played out for Brian Chartier. The 29-year-old Glendale resident handles inventory for a Los Angeles manufacturing company. No one there, he said, has gotten a raise in two years.

"They're able to do this and I haven't quit, because where am I going to go?" he said. "There are no jobs."

While his salary remained flat, rising healthcare premiums kept eating up more and more of Chartier's take-home pay, so he dropped out of his employer's insurance program. His rent is also climbing.

As Chartier loaded bags of groceries into his Honda Civic last week, he boasted that they were full of bargains. "I don't get a single thing that's not on sale," Chartier said. "I can't afford to anymore."

Despite the failure of their wages to keep pace with inflation, American consumers have kept shopping. Consumer spending has continued to rise. Analysts say that's partly because some shoppers are thinking less about their paychecks and more about their biggest asset: their homes.

Home prices rose 21.1% in Southern California and 9% nationwide from February 2004 to February 2005, sheltering consumers, and the economy, from much of the pinch of higher prices.

"There's been a wealth effect afoot throughout much of the recession and the recovery," said Bernstein of the Economic Policy Institute, "because no matter what people's incomes were doing, their wealth was improving — their biggest assets, their homes, were accruing."

As inflation sparks higher interest rates, most economists expect the housing market to cool, making shoppers more dependent on their paychecks. And even those who have seen their paper wealth rise phenomenally aren't happy about rising costs and stagnant pay.

Corina Swatz has seen the value of her Silver Lake home triple in about a decade. But neither she nor her husband has gotten a raise in more than a year. Meanwhile, gas prices have forced them to shell out $55 to fill the tank of their Chevy Tahoe.

"I used to spend $600 a month [on groceries]. Now I spend $800," Swatz, a mother of two, said as she made her weekly Costco run last week. The increased value of her home gives her only so much solace. "We're hanging in there."

The danger is that people like Swatz, despite their home equity cushion, may pull the rug out from under the economic expansion by reining in their spending.

That's what Gabriel Torres has done. The 56-year-old cook, who lives in Hollywood, hasn't gotten a raise in years but pays ever-higher prices to fill his Nissan Xterra. He and his wife have come up with a solution: Cut down on driving.

"We don't go out much," Torres said. "We used to. But now we only drive when we really have to."

[chomerics]

Looks like we're going to see the intrest rate climb and the housing market come tmbling down now. I'd suggest getting your stocks out of real estate funds right now and put them somewhere safe.

Inflation is not good, and Greenspan hates it. I am just suprised it took so long to come around, seeing how intrest rates were so low.

[jbooma]

Originally posted by chomerics

Looks like we're going to see the intrest rate climb and the housing market come tmbling down now. I'd suggest getting your stocks out of real estate funds right now and put them somewhere safe.

Inflation is not good, and Greenspan hates it. I am just suprised it took so long to come around, seeing how intrest rates were so low.

It might flatten but won't tumble like you think.

[zoony]

Originally posted by jbooma

It might flatten but won't tumble like you think.

Just bought a new home, eh JB? Kiss your equity goodbye. Overnight.

j/k ... there is no telling what the housing market might do... but there is plenty of indication that a downturn is likely.

$800,000 for a 3 bedroom home in Alexandria, that my parents bought in 1977 for $58,000.

Now tell me...with a straight face... that doesn't sound like a market poised to come tumbling down....

[DjTj]

As someone that may want be moving into the DC area in about a year and a half, I sure hope the housing pricings do start coming down soon.

[chomerics]

Originally posted by jbooma

It might flatten but won't tumble like you think.

Time will tell Booma, but things don't look too good right now. The exact same thing happened in the 80's in Boston. The market crashed and it took almost 12 years to get back even.

With intrest rates at an all time low, they artificially kept up the cost of houses. People took out mortgages on their equity, and now they are maxed out. It helped our recession, but we're about to pay the piper. Like I said, only time will tell, but it definately looks like a bubble about to burst.

[jbooma]

Originally posted by zoony

Just bought a new home, eh JB? Kiss your equity goodbye. Overnight.

j/k ... there is no telling what the housing market might do... but there is plenty of indication that a downturn is likely.

$800,000 for a 3 bedroom home in Alexandria, that my parents bought in 1977 for $58,000.

Now tell me...with a straight face... that doesn't sound like a market poised to come tumbling down....

No it doesn't, that is this area, when ever there is issue everywhere else we are not as impacted.

Like I said the market won't tumble if rates start going up, then yes it will slow down, but you will still be able to sell homes for at least assesment or 50K over.

There are so many more options now regarding mortgages that let people afford these homes.

The other key is location, the DC area is one of the best locations in the nation, because of the job market, government and area.

Look back in history even in 91 homes were still selling here and people were still making money in the middle of a long recession.

[jbooma]

Originally posted by chomerics

Time will tell Booma, but things don't look too good right now. The exact same thing happened in the 80's in Boston. The market crashed and it took almost 12 years to get back even.

With intrest rates at an all time low, they artificially kept up the cost of houses. People took out mortgages on their equity, and now they are maxed out. It helped our recession, but we're about to pay the piper. Like I said, only time will tell, but it definately looks like a bubble about to burst.

There was a good article on MSNBC.com that listed a bunch of cities that were in bubletts, meaning the housing market was outpacing salaries, the majority of these cities were in Florida and Cali.

Now some areas might burst (depending what you mean by burst), however other places will be safe.

[Cdowwe]

sounds scary

[KevinthePRF]

Don't worry those corporate profits ought to be trickling down any moment now.

Was that out loud?

[Sarge]

I wouldn't worry about interest rates until they hit 10%. Hell, I bought my house in VA in 95 at 9.8%. ANd that was during the "booming" 90's

[NoCalMike]

Getting a house is not the problem, it is what to do once you are locked up in a sh!tty mortgage, interest rate, etc......a lot of the suburbia folks are driving themselves into debt just to become a member of a brand new suburban patch, with the 2 shiny cars in the driveway, the plasma tv, all the new gadgets, and besides running up credit card debt beyond belief....no way in hell of every paying for any of it.

[Sarge]

Originally posted by NoCalMike

Getting a house is not the problem, it is what to do once you are locked up in a sh!tty mortgage, interest rate, etc......a lot of the suburbia folks are driving themselves into debt just to become a member of a brand new suburban patch, with the 2 shiny cars in the driveway, the plasma tv, all the new gadgets, and besides running up credit card debt beyond belief....no way in hell of every paying for any of it.

And who's fault is that? When I was in Japan recently, one of my associates commented that America is no longer a saving society, and he was correct.

Look at what our grandparents did. If they wanted something, they saved until they had enough money to buy it. Today's society has been trained by big business to get what they want now. But in the end, it's no one's fault but the consumer. No one is making you go get all the goodies and toys

[NoCalMike]

Originally posted by Sarge

And who's fault is that? When I was in Japan recently, one of my associates commented that America is no longer a saving society, and he was correct.

Look at what our grandparents did. If they wanted something, they saved until they had enough money to buy it. Today's society has been trained by big business to get what they want now. But in the end, it's no one's fault but the consumer. No one is making you go get all the goodies and toys

Your friend certainly was right, as many have said that places like Japan, India, etc it is about how much you save, and in America people are judged on how much they spend, and the more you spend on STUFF, the better you are.

I am not excusing the people that do this, however I am simply pointing out that sometimes, a lot of the times in fact nowadays, is that people's possesions don't necessarily reflect their incomes and how well financially they are doing, as we are a society caught in a tailspin of outrageous consummerism that doesn't seem to be slowing down anytime soon, and that people are more prone to go out and buy stuff, things, items, etc etc.....even though they have no business making that purchase. Advertising, especially the pyschological breakthroughs in advertising play a big part in this. One could only hope that this rage of consumerism doesn't spread to other countries to fast, because the Earth hardly has the resources to support the whole world consuming like we do.

[Pete]

You know what this means for my area of the country. More of the same.

Real estate has trippled in value over a ten year period. Young people who want to own a home are now forced to move to the boonies, or out of the area completely.

The average income of the area hasn't risen nearly enough to come close to keeping up.

Getting a house is not the problem, it is what to do once you are locked up in a sh!tty mortgage, interest rate, etc......a lot of the suburbia folks are driving themselves into debt just to become a member of a brand new suburban patch, with the 2 shiny cars in the driveway, the plasma tv, all the new gadgets, and besides running up credit card debt beyond belief....no way in hell of every paying for any of it.

While this is a problem to some extent, it's a smaller part IMO. The only people in my area who live that lavish lifestyle are the ones who move here with a bunch of money they got from selling an average home up north. They build high priced homes in average neighborhoods causing values to go up across the boards.

Sorry if I'm only looking at my area. People who moved here in the 80's and early 90's because it was an affordable place to live are being forced out. We don't have any real industry for people to make a good wage. Retail, tourisim, and farming doesn't cut it. But the influx of northern money never stops. We don't even have the water to support the population now, yet we keep building more and more subdevisions.:doh:

This area is gonna crash. I just hope it waits till my daughter is off at college so we can get the hell out of here.

[zoony]

Originally posted by Sarge

And who's fault is that? When I was in Japan recently, one of my associates commented that America is no longer a saving society, and he was correct.

Look at what our grandparents did. If they wanted something, they saved until they had enough money to buy it. Today's society has been trained by big business to get what they want now. But in the end, it's no one's fault but the consumer. No one is making you go get all the goodies and toys

Japan is no longer a saving society, either.

Their youth are not saving. It has Japanese elders in a tizzy.

As a matter of fact, many articles are claiming it is worse over there

[Mufumonk]

Originally posted by zoony

Just bought a new home, eh JB? Kiss your equity goodbye. Overnight.

j/k ... there is no telling what the housing market might do... but there is plenty of indication that a downturn is likely.

$800,000 for a 3 bedroom home in Alexandria, that my parents bought in 1977 for $58,000.

Now tell me...with a straight face... that doesn't sound like a market poised to come tumbling down....

The place 2 houses up from where I live went on the market over the weekend. It's identical to my house, which I bought less than a year ago at 319k. This one is selling for 490k.

[SkinsNut73]

Originally posted by NoCalMike

Getting a house is not the problem, it is what to do once you are locked up in a sh!tty mortgage, interest rate, etc......a lot of the suburbia folks are driving themselves into debt just to become a member of a brand new suburban patch, with the 2 shiny cars in the driveway, the plasma tv, all the new gadgets, and besides running up credit card debt beyond belief....no way in hell of every paying for any of it.

I met someone the other day at my son's first tee-ball practice...they had $60K in credit card debt :yikes: :thud:

I'm not sure what shocked me more...the fact that he had that much in credit card debt, or that he broadcast that info to someone he met for the first time that day??? I don't know how you get up each day and go about life with that much debt? I would feel so overwhelmed. Hell, everytime I read the "average American has $8K in credit card debt" I think that's way too much...but $60K...

[Kilmer17]

Good lord!!!!

[jbooma]

Originally posted by NoCalMike

Getting a house is not the problem, it is what to do once you are locked up in a sh!tty mortgage, interest rate, etc......a lot of the suburbia folks are driving themselves into debt just to become a member of a brand new suburban patch, with the 2 shiny cars in the driveway, the plasma tv, all the new gadgets, and besides running up credit card debt beyond belief....no way in hell of every paying for any of it.

BINGO!!!!!!!!!!!!!!

The problem isn't the home prices, but how much debt everyone has on their credit cards etc...

The key to credit cards is not to run a balance, if you can't pay it off in a month then why are you buying it in the first place??

I used to be like that but my wife changed me, and it was for the better. I always jumped at those things that said only $20 a month, and then realize you pay much more then that, why pay extra for something when you don't have too.

[SkinsNut73]

Originally posted by jbooma

BINGO!!!!!!!!!!!!!!

The problem isn't the home prices, but how much debt everyone has on their credit cards etc...

The key to credit cards is not to run a balance, if you can't pay it off in a month then why are you buying it in the first place??

I used to be like that but my wife changed me, and it was for the better. I always jumped at those things that said only $20 a month, and then realize you pay much more then that, why pay extra for something when you don't have too.

I work with a lady who brags about how she and her husband "fool the system". They usually have between $12 to $15K in credit card debt...but it's all on zero percent APR cards. Everytime the promotional period is up, they get another card and transfer the balance for the next 6-12 months...at the 0% promotion rate. :rolleyes:

[@DCGoldPants]

I think we should cut taxes, and raise Gov't spending.

[Kilmer17]

There are valid reasons to spend money on a credit card. But 8k worth??????

That's simply an undisciplined person.

There are months that I run a balance approaching a grand and carry it a month or two. But that's no different than in my mind than using a line of credit.

And at 4.99 interest, sometimes Im making money.

[jbooma]

Originally posted by SkinsNut73

I work with a lady who brags about how she and her husband "fool the system". They usually have between $12 to $15K in credit card debt...but it's all on zero percent APR cards. Everytime the promotional period is up, they get another card and transfer the balance for the next 6-12 months...at the 0% promotion rate. :rolleyes:

:laugh: :laugh:

I guess they haven't gotten a credit score anytime soon, the more accounts you open in a short period of time might hurt you more then you think.

[Thiebear]

The same people would think that shopping for xmas now is silly . 2 presents a month and 0 on the credit card...

I got my first raise since 2001 this year... a trend breaker i tell yah.