Even Record Gains in Worker Pay Fall Behind Soaring Costs of Living

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Worker pay and benefits rose at a record pace in the second quarter—but even that was not enough to prevent American workers from losing ground to inflation.

The employment-cost index, a gauge of wages and benefits for civilian workers, jumped a seasonally adjusted 1.3 percent in the quarter, the Labor Department said Friday. That was close to the 1.4 percent gain in the first quarter, the biggest increase in records going back to the turn of the century.

Employers spent 5.1 percent more on benefits and wages in the second quarter compared with the April through June period a year ago. That is the biggest ever year-0ver-year gain in employment costs.

Inflation, however, has been running even hotter, pushing prices up faster than record gains in salaries and wages. Adjusted for inflation, compensation is down 3.6 percent compared with the period a year earlier.

Private sector compensation costs were up 1.5 percent in the second quarter, including a 1.6 percent gain in wages and salaries and 1.3 gain in benefits. Annually, private sector compensation costs rose 5.5 percent, with a 5.7 percent gain in wages and salaries and a 5.3 percent rise in benefits costs. After inflation, however, total costs fell 3.3 percent, with a 3.1 percent drop in wages and salaries and a 3.5 percent drop in benefits.

The ongoing rise in compensation costs, especially wages and salaries, are likely to contribute to inflation in the months ahead. Businesses will attempt to pass on higher labor costs to customers and the rise in pay gives workers more money to spend, pushing up demand. This wage-price spiral is contributing to depressed consumer sentiment and dissatisfaction with economic conditions.

Separately, the Commerce Department on Friday reported that the personal consumption expenditures price index—a key measure of inflation closely tracked by officials at the Federal Reserve—rose one percent in June compared with the prior month, the biggest gain since 1981. Annually, the PCE prices are up 6.8 percent, the most since January 1982.

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