For the first time in nine years, many white-collar workers will get pay raises of less than 4 percent in 2002, according to a report released last week. The Conference Board survey is the latest indication that compensation gains are slowing, and raises concerns among economists that smaller raises could dampen consumer spending and economic growth.
A majority of workers will get the traditional 4 percent pay increase, but a larger share of employees will see lower raises this year than they received in the past several years, according to the survey of 533 companies conducted by the New York-based, nonprofit business research organization.
"An increasing number, but not a majority, are going to be getting less than 4 percent," said Charles Peck, compensation specialist for the board. "That's a fairly significant comedown. For year after year, hardly any company has been budgeting less than 4 percent."
Peck said companies are pulling back because of the recent economic downturn and uncertainty in the wake of the Sept. 11 terrorist attacks, the Enron meltdown and other corporate scandals.
A lagging indicator
Wage growth typically slows at the start of a recovery, economists said.
"Salary increases are a lagging economic indicator -- a function of what happened yesterday as opposed to today," said Sung Won Sohn, chief economist for Wells Fargo and Co. "Employees and labor unions are reluctant to demand higher wages when the labor market is so soft, and businesses are reluctant to hire people."
The Conference Board report added to worries that the strong consumer spending that has buoyed the economy may not be sustainable.
Slower wage gains "limit buying power," Sohn said. "It helps hold down inflation, but also it keeps economic growth modest and that means you tend to have a jobless recovery. It limits ability to spend money, so demand is limited."
Of the three employee categories listed by the Conference Board -- executive, exempt, and non-exempt -- the lowest paid group is bearing the brunt of the salary retrenchment. The typical pay hike for clerical workers will drop this year to an average of 3.7 percent in all six industries surveyed -- banking, services, insurance, manufacturing, trade and utilities.
Executive pay raises are holding steady across the board at 4 percent this year. The picture is mixed for managers, supervisors and professionals, who are falling back in manufacturing, trade and utilities, but holding in other industries.