‘89 Raises May Lag Behind Inflation : Survey Says Higher Taxes Would Widen Gap for 2nd Year

Salary increases for U.S. workers will average 5.3% this year, indicating that spending power probably will lag behind inflation for the second straight year, according to a survey released Wednesday.

The survey of 1,260 businesses found that, after taxes, raises will not match the increased prices of goods and services bought by urban wage earners and clerical workers, which rose at an annualized rate of 5.1% through August.

The study by Hewitt Associates, a compensation consulting firm, asked a cross-section of U.S. businesses how much they increased their budgets for salaries in 1989 and how much more they expected to budget in 1990.

The increased income taxes on the 5.3% raises would more than offset the edge over inflation that salaried workers would appear to enjoy, said Eddie Smith, manager of Hewitt’s direct-compensation consulting practice.

The projected loss of purchasing power extends a pattern established in 1988, the first year this decade in which inflation outstripped the average rise in salaried workers’ take-home pay, Hewitt said.

Using Bonus Plans

The loss of spending power is “small, but significant,” Smith said.

Hewitt, based in suburban Lincolnshire, projected a narrowing of the inflation-salary gap next year.

The survey did not include wage increases for union workers, who comprise 16.8% of the work force, according to Labor Department figures.

Smith said an increasing number of companies are shifting compensation dollars to bonus plans or other incentive programs that reward salaried employees for achieving stated goals.

“For a large number of salaried workers there is a second source of earnings,” he said.

The businesses reported average salary increases of 5.3% this year and estimated increases averaging 5.4% for 1990.

Hewitt said salary increases averaged 5% in 1988, the first year since 1981 that the survey showed an increase in the size of yearly raises for salaried workers.

Different Indexes

The consumer price index for urban wage earners and clerical workers rose 4% in 1988. Smith said higher income taxes on a 5% raise would more than offset the 1-percentage-point edge workers appeared to have over inflation in 1988.

The consumer price index used in Hewitt’s study, known as CPI-W, is a narrower indicator of inflation than the more widely cited CPI-U index, which tracks the prices of products purchased by all urban consumers, not just wage earners and clerical workers.

The Labor Department’s CPI-U index shows inflation running at an annualized rate of 4.8% through August.

The salary increases in Hewitt’s study are greater than those reported by the Labor Department for wage and salary earners in private industry because the government’s numbers include hourly and union workers, whose raises are typically smaller than those of salaried workers.

The Labor Department said wages for those workers rose 3.3% in 1987, 4.1% in 1988 and 4.1% through August of this year.