Raises not keeping up with inflation

By Diane Stafford
Knight Ridder News Service

KANSAS CITY, Mo. — Salary increases could be falling behind the pace of inflation, according to two national studies.

The Conference Board reported yesterday that actual 2004 business salary budgets are showing a median increase of 3.5 percent this year.

Separately, the second-quarter Wage Trend Indicator by BNA Inc. showed a 2.6 percent rise in private-sector wages.

The reports by both business and economic research organizations show that workers' pay raises are not keeping up with cost increases. In the first five months this year, inflation grew at a 5.1 percent seasonally adjusted annual rate.

If the government-reported inflation rate continues at the pace it recorded in May, the annualized inflation rate for 2004 could be as high as 7 percent.

The Conference Board's inflation outlook is not quite as pessimistic, though. It forecasts the 2004 inflation rate to be 2.2 percent, in which case 3.5 percent raises would provide a small cushion.

But even if median wage and salary increases do stay ahead of inflation, the report noted, 2003 and 2004 were the first two years in the past 11 that median pay increases have fallen below 4 percent.

The downward pressure on wage increases is a departure from the 1990s, when annual raise rates were 4 percent or slightly higher year after year.

Charles Peck, compensation specialist at the Conference Board, said companies were "still paying close attention to cost control." Thus, across all three employee groups — executive, exempt and nonexempt — raises are being held to the median 3.5 percent increase this year, he said.

Similarly, Joel Popkin, an economist who helped develop the wage indicator for BNA, reported that a lingering weak labor market continues to restrain wage increases.

Popkin forecast wage increases to remain below 3 percent into early 2005.

In the Conference Board report, the insurance industry was singled out as the only industry group that has 2004 salary budgets falling below what was forecast last year. The insurance industry had predicted 4 percent raises but is delivering between 3.5 and 3.7 percent.

The Conference Board predicts a 3.5 percent median salary budget increase for 2005 and a 2005 inflation rate of 2.7 percent.

That report also looked at salary structure adjustments, described as "the movement up or down of pay ranges for the hierarchy of jobs established by organizations." That measurement, which differs from the pay increases granted employed individuals, also slipped this year.

Salary structure adjustment fell below a longstanding 3 percent increase for the first time in 2003 and is coming in at a median 2.5 percent in 2004. The median adjustment is forecast to be 3 percent or below across industries in 2005 as well.