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July 27, 2005

Treading Water

Stagnant wages. This doesn't feel like an economy near full employment. Not at all:

How Long Can Workers Tread Water? - New York Times: By EDUARDO PORTER: James Barnes, a $350-a-week guard at an office building on Madison Avenue in Midtown Manhattan, has not had a raise in years. But his income just jumped sharply: Three months ago, he took on a newspaper delivery route from 3 a.m. to 7 a.m., which pulls in an extra $235 a week.

Mr. Barnes fits snugly into the pattern of America's current economic expansion. The wages of typical workers are treading water, growing roughly at the same rate that inflation eats into their buying power. Last week, the Labor Department reported that average wages for production and nonsupervisory workers in the private sector, about 75 percent of the labor force, reached $16.06 an hour in June, just 2.7 percent above the level a year ago.... Workers' wages may be barely keeping up, but Americans' average incomes are growing briskly - in part, because of growth in the overall number of jobs, including Mr. Barnes's extra one. But it also reflects other forms of income, flowing mostly to the more affluent.... "You have a lower half of the wage distribution in the United States that has not experienced any income gains for a long time now," said Barry P. Bosworth, an economist at the liberal-leaning Brookings Institution.... Even as the average worker's wages are stuck in neutral, corporate profits, professionals' incomes, gains from investments and executive compensation - the kind that frequently comes in the form of stock options - are all surging, supporting healthy gains in the economy....

To be sure, income growth has slowed from its torrid pace - year-on-year growth of real disposable income decelerated to 3.7 percent in the first quarter of 2005, from 4.7 percent in the fourth quarter of 2004.... But that is still plenty strong enough to support substantial output growth, which is expected to advance about 3.5 percent this year, after accounting for inflation. The income gains have been powerful enough to overcome the headwind of surging oil prices, which have pushed gasoline to over $2.25 a gallon.... And there are scant signs that spending is on the wane. Mr. Mann just bought an iPod. With the prospect of more take-home pay, even Mr. Barnes joined the shopping crowds, spending his income-tax refund on a secondhand Dodge Caravan minivan. "It's good because I enjoy it," Mr. Barnes said, "but I need it for my second job."...

Posted by DeLong at July 27, 2005 09:53 AM