U.S. Suffers Biggest Pay Drop On Record, As Workers Squeezed Tighter

U.S. Suffers Biggest Pay Drop On Record, As Workers Squeezed Tighter
Man Working At Steel Cutting Machine
Man Working At Steel Cutting Machine

The economic "recovery" just keeps getting worse for the average worker: U.S. employers squeezed their employees even harder than usual in the first quarter, leading to the biggest drop in hourly pay on record.

Hourly pay for nonfarm workers fell at a 3.8 percent annualized rate in the first quarter, the Bureau of Labor Statistics reported on Wednesday. This was the biggest quarterly decline since the BLS started keeping track in 1947. Some of the drop was payback for a 9.9 percent surge in hourly pay in the fourth quarter of 2012, as employers shoveled money out the door to avoid tax changes they expected to take place in 2013.

But there have been plenty of such quarterly pay increases in the past. Many were even bigger. Some went on for several quarters at a time. And never has there been such a steep pay drop in response as there was in the first quarter of this year.

Smoothing out the quarterly ups and downs doesn't make the picture look any better. Hourly worker pay rose just 1.9 percent in 2012, a pitiful increase that barely kept up with the 1.8 percent gain in the consumer price index. That was the third-weakest annual increase in hourly pay since 1947, topping only the 1.4 percent gain in 2009 and a 1.8-percent gain in 1994.

Hourly pay has grown by just 2 percent per year, on average, for the past four years, the weakest four-year stretch on record. At the same time, corporate profits are at record highs, and until a recent swoon, the stock market was setting records, too. Workers haven't been reaping the rewards, but their employers have been.

The economy hasn't been getting much out of the bargain lately, either. Worker productivity -- hour output per hour worked -- gained 0.5 percent in the first quarter, according to the BLS. That's weaker than the 0.7 percent gain in all of 2012 or the 0.6 percent gain in all of 2011. Productivity is down dramatically from average annual gains of 3 percent in 2009 and 2010.

Weaker productivity could be good news. Maybe employers have hit the limits of how much they can squeeze out of their workers, meaning they'll have to hire some more.

But it does not bode well for future growth. The U.S. had four straight years of meager productivity going into the Great Recession. Stagnant productivity can erode living standards and leave less money for the kind of research and development that leads to the jobs of the future.

Productivity has seemed decoupled from worker pay for awhile now -- even when the economy is productive, pay has been mostly stagnant, as most of the benefits flow to the very top of the income stack. So, hooray, yet another culprit in the death of the middle class.

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