
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, August 1, 1995                   TAG: 9508010053
SECTION: EDITORIAL                    PAGE: A-4   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

WAGE EROSION

THE TYPICAL American worker is seeing his or her wages lose ground against inflation, which goes a long way toward explaining the anxiety people are feeling in a relatively healthy economy.

Companies are seeing profits rise with productivity; workers are not seeing their paychecks rise accordingly.

Not to worry, some economists say. The percentage of production going to wages and salaries has dropped since the 1950s, but workers' total compensation, including health insurance and retirement benefits, has risen.

And, while government economists estimate a lag of about 2 percentage points between increased productivity and wages over the past two years, they point out that such gaps have occurred in the past, and have righted themselves in a couple of years.

Is the current wage lag temporary? Or is some larger change going on?

Brookings Institution economist Barry Bosworth theorizes in The Wall Street Journal that a permanent change may be occurring. The cost of business items such as machinery and computers is rising more slowly than the cost of consumer goods, most notably health care and housing, so many things that workers are making cost less than the things they are buying. Workers may be getting paid fairly, even though they are losing buying power.

In the same edition, an investment strategist explains that because consumers facing tight budgets are more price-conscious nowadays, companies are more reluctant to raise prices - and wages. The decline in consumer spending power is not a big problem, either, in his view. More goods, especially capital goods, will be exported.

How this trend develops is more than a cyclical phenomenon, more than a market gamble for investors deciding where to put their chips. Fundamental economic change is at work.

Working people need to recognize this isn't about an employer simply keeping money from them. Rather, they are feeling the effects of a shift from a national and industrial-based economy to an international and knowledge-based economy, a sea change that may seem remote and abstract, but that is crashing against the front doors of multitudes of middle-class homes.

Learning new skills is the best protection. It's also the best way to sustain and boost incomes.

by CNB