U.S. Business Productivity Increases 1.2% : Wage Gains in Collective Bargaining Hit New Low

The productivity of U.S. businesses rose at a 1.2% annual rate during the summer while major bargaining contracts this year have contained the smallest wage increases on record, the government reported Monday.

Private analysts said the two Labor Department reports painted a picture of an economy in which consumers are getting a price break, but it is coming at the expense of a beating inflicted on U.S. industries at the hands of foreign competition.

The Labor Department said the 1.2% increase at an annual rate in the productivity of non-farm businesses during the July-September quarter matched the advance recorded from April through June. Both quarters showed a significant improvement from a 3.1% decline in productivity suffered in the first quarter of this year.

The increase in productivity came from a 3.2% advance in output while the hours worked by employees was rising by 2%. Productivity is a measure of output per hours worked.

These changes, along with salary adjustments, left the unit labor cost--the amount of compensation per unit of output--rising at an annual rate of 2.7% in the July-September quarter, only a slight advance from a 2.1% rate of increase in the second quarter.

Unit Labor Costs Up 0.5%

Unit labor costs went up at an even slower 0.5% rate in the U.S. manufacturing sector in the July-September period, according to the report.

A second Labor Department report said that major collective bargaining agreements reached during the first nine months of this year provided for annual wage adjustments of 2.3% in the first year of the contract.

This gain was the lowest increase since the Labor Department began surveying major collective bargaining agreements in 1962.

Analysts said the remarkably low wage increases were a reflection of the stiff competition that U.S. industries have faced all year from foreign producers.

“These reports suggest that we will continue to have low inflation because of the squeeze on the industrial side of the economy,” said Allen Sinai, chief economist for Shearson Lehman Bros. “There is no other choice for American business but to squeeze as much productivity as possible from the labor force and to keep a downward pressure on prices.”

Sinai said the manufacturing sector, which has lost 340,000 jobs since the first of the year, was likely to suffer more layoffs in coming months.

Consumers Benefiting

While the flood of imports has hurt U.S. producers, consumers are benefiting from the price competition. Sinai said the low growth in wage settlements and in unit labor costs was a sign that inflation will remain at low levels next year.

The report on union contracts said that the settlements reached so far this year called for a first-year salary increase of 2.3% and an annual increase over the life of the contract of 2.7%.

This compares to increases of 3.8% for the first year and annual increases of 3.4% for the last time these parties bargained, the department said. The survey covers industries employing 7 million workers in bargaining units with at least 1,000 workers.