Inflation Is Stinging U.S. Workers Harder

[question everything]

The Wall Street Journal

Inflation Is Stinging U.S. Workers Harder
European Pay Raises Keep Pace Now, But Economists Fear a Wage-Price Spiral
By JOELLEN PERRY and SUDEEP REDDY
August 22, 2008; Page A1

Consumer prices are rising at their fastest pace in more than a decade in both the U.S. and the euro zone. But it's affecting workers on the two sides of the Atlantic in very different ways. In Montgomery, Ala., Steve Murphy, an instructor for adults with mental disabilities, doesn't expect to get a raise because his employer is getting squeezed by higher fuel bills. In Madrid, Spain, travel agent Ignacio Temprano gets raises to match inflation because Spanish unions helped negotiate such increases into law. He says he considers the extra money "a bonus." Unions are more powerful in the 15-nation euro zone than in the U.S., and many laws and practices there are more worker-friendly. That's part of the reason why many European workers are keeping up with inflation better than their U.S. counterparts.

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In the U.S., where unions are weaker and wages aren't often indexed to inflation, workers fell behind. Consumer prices were 4.1% higher in the first quarter than in the year-earlier period, but workers' wages and benefits increased 3.3% over the same period. Inflation has risen further since the first quarter, hitting 5.6% in July, while compensation growth has slowed. What's good for Europe's workers, however, could prove costly to its economy. As European wages rise, employers come under pressure to increase prices to cover labor costs. The added danger in countries where wages are formally indexed to inflation is an inflationary spiral that's hard to tamp down. Sharp wage increases could prompt European companies to lay off workers or move more jobs to countries where labor is cheaper.

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Rising labor costs can affect employment levels. In Europe, generous worker protections often make it more difficult to fire employees during a downturn, which tends to deter employers from hiring. Over the past decade, unemployment rates have been markedly higher in the euro zone than in the U.S. The rate in the U.S. has been rising of late, hitting 5.5% in June and 5.7% in July. But in the euro zone, even though unemployment is near its lowest level in a decade, the rate is higher: 7.3% in June.


(snip)

Organized labor has a lot to do with differences between wage inflation in the U.S. and Europe. In the U.S., just 7.5% of private-sector workers are union members, and about 12% of all workers, including government employees. In the euro zone, 18% of private-sector workers, and 22% of all workers, are unionized. In parts of Europe, unions have even more clout than their membership numbers suggest. In much of the euro zone, there is a tradition of big unions negotiating wages for large sectors of the work force, not just their own members. The unions wrangle with employer associations, rather than individual firms, to secure wage deals. In euro-zone countries where such centralized negotiations are less common, wage gains are lagging.

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In the U.S., collective bargaining is far less common, and dwindling union membership has eroded workers' bargaining power. Labor laws enable most companies to trim staff freely during an economic downturn, leaving U.S. workers with less leverage to press for higher pay. Health insurance linked to employment often makes workers reluctant to leave their jobs, even if wage gains are meager. Only 2% of U.S. union contracts have clauses that tie wages to inflation, according to a survey of unions and employers by the Bureau of National Affairs, a publisher based in Arlington, Va. In the late 1970s, more than one-third of such contracts included cost-of-living adjustments. High inflation during the 1970s prompted many employers to eliminate the provisions.

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http://online.wsj.com/article/SB121935236568761377.html (subscription)

[magellan]

1. I'm skeptical of the US unemployment figures quoted by the WSJ

...which throws the rest of their article comparing the EZ to the US out of whack.

[sendero]

2. Laughable..

... there is a price spiral all right, but where's the wage spiral going to come from with 10% unemployment?

Economists, as a whole, are just about useless. Only a handful of them ever predict the future with even a modicum of accuracy.

There is NOT going to be a wage-price spiral, there is going to be DEFLATION

[Indenturedebtor]

3. Laughable is right. And where do they think money to buy crap to fuel the economy

is going to come from over here? The credit cards are going to go soon, the housing market is GONE.... How will we continue to pay our CEO's 100 million a year unless workers are continually able to charge it?

Morons. You HAVE to index wages to inflation or the system falls apart when the credit runs out. No one has a fucking stupid credit economy like we do.... it's been around for as long as our wages haven't properly adjusted for inflation. Buy a clue you ivory tower morons.