Wages tumble toward 18-year low

By Dennis Cauchon and Paul Overberg, USA TODAY

A bad economy and low inflation are starting to drag down wages for millions of everyday workers and freeze benefits for millions of retirees.

Average weekly wages have fallen 1.4% this year for private-sector workers through September, after adjusting for inflation, to $616.11, a USA TODAY analysis of Bureau of Labor Statistics data found.

If that trend holds, it will mark the biggest annual decline in real wages since 1991.

The bureau's data cover 82% of private-sector workers but exclude managers and some higher-paid professionals.

"Wages are usually the last thing to deteriorate in a recession," says economist Heidi Shierholz of the liberal Economic Policy Institute. "But it's happening now, and wages are probably going to be held down for a long time."

Colorado announced this week it will become the first state to lower its minimum wage since the federal minimum wage law was passed in 1938. The state will cut its rate by 4 cents to $7.24 an hour Jan. 1, to reflect a drop in the consumer price index.

Retirees are also feeling some pain. Social Security announced Thursday that it will not give cost-of-living increases to beneficiaries next year because prices have fallen in the past year.

Weekly wages have tumbled largely because employees are working fewer hours — an average of 30 per week — than at anytime since the government began tracking the data in 1964.

Hourly wages are stagnant or declining, too. After adjusting for inflation, average hourly wages have dipped a half-percent this year to $18.67 an hour in September.

Prices measured by the CPI are down 1.8% from their peak in July 2008. For seven months, the CPI has declined from the same month a year earlier — the longest stretch since 1955.

That trend is upsetting a wide range of wage-and-benefit packages in this recession.

Nearly 80 million people have wages or benefits tied to changes in the consumer price index. Those include contracts for 2 million unionized workers, food stamp payments and some child support checks. The Labor Department announced Thursday that federal pensions won't increase next year.

The consumer price index fell 3.3% in the last quarter of 2008. Most cost-of-living adjustments include the end of last year in changes that take effect Jan. 1.

Ten states link minimum wages to inflation. But, unlike Colorado, most states do not cut minimum wages when prices fall.

Ohio recorded a 0.2% drop in prices in the past year, says Dennis Ginty of the Ohio Department of Commerce. Like Social Security rules, Ohio's law permits only cost-of-living increases, never decreases, Ginty says.

Business groups say this one-sided inflation adjustment is unfair. "The bar should move both ways, up and down, if you're going to have a cost-of-living adjustment," says Shawn Cleave, a lobbyist for the Oregon Farm Bureau.

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