Workers’ pay and benefits lagging far behind inflation

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Inflation surged in the second quarter with soaring energy and food costs, as any consumer can attest.

The growth in workers’ compensation, however, remained flat with the first quarter and down from a year earlier, the government’s latest data show.


It’s another sign that the pain in your wallet is real -- and maybe worse than you think.

The Labor Department today said its employment cost index, which measures what employers shell out for wages and benefits, rose 0.7% in the second quarter, matching the first-quarter increase.

Last quarter’s rise was down from a 0.9% increase in the second quarter of 2007, a clear indication that employers have been feeling less pressure to boost compensation as jobs overall are harder to find.

Now, look at the annualized numbers: In the 12 months through June, total employment costs were up 3.1%. By contrast, inflation as measured by the consumer price index was up 5% in the same period.


Another negative trend for workers: The benefits component of the employment cost index rose just 0.6% last quarter, also flat with the first-quarter increase and less than half the 1.3% rise in the second quarter of 2007.

Employers’ cost of benefits is down ‘because employees are paying more of their own costs,’ notes Diane Swonk, economist at Mesirow Financial in Chicago. Think medical care co-payments, for instance.

One more dismal report today: The government said new claims for unemployment benefits rocketed to 448,000 last week, an increase of 44,000 from the previous week and a five-year high.


Analysts noted that the big increase might have partly reflected an influx of claims by people who had exhausted their benefits and were reapplying under a federal extension program that took effect earlier this month.

Even so, the need for extended benefits by a bigger chunk of the worker population doesn’t paint an encouraging picture of the job market. People wouldn’t be applying for extended benefits ‘if they were not losing jobs in the first place,’ Goldman, Sachs & Co. economists noted in a report today.

All of this is setting the scene for the government’s report on Friday on July employment trends. The consensus forecast is for a loss of 75,000 jobs this month, which would be the seventh consecutive monthly decline in payrolls.