Bull! Not bull.
    About | Home | Blog | Gallery | Archive | Bibliography | Trading | Elliott Wave | Commodity Charts | Subscribe/Contact | Search Site

Do we have wage inflation?

Posted on January 12, 2006
Filed Under Uncategorized |

In spite of rising commodity prices, higher gasoline, bigger grocery and heating bills and a gold price at 25-year highs, there is still a huge missing piece of the inflationary puzzle, and that is wage inflation. It is wage inflation that holds the key to whether the current inflationary spike will be of lasting consequence, or merely an intermission to the disinflation / deflation that the US has seen since in recent decades.

To date, wage inflation has been kept in check by the forces of globalization and intense competition. Employers’ power to outsource work to cheaper locations around the globe has kept workers timid about demanding wage increases. Furthermore, the inability to pass on price increases in consumer goods has kept pressure on company margins, leading to pressure on worker salaries and benefits.

If worker salaries remain under pressure, an increasing portion of their paychecks will be devoted to simply making ends meet: buying higher priced gasoline, heating their homes, groceries, etc. Not only will this decrease their discretionary spending, it will contribute to a psychology of consumer negativity and pessimism. This will drive consumers simply to conserve more – drive less, turn the thermostat down, shop for bargains, pay down debt and save money for hard days ahead. This is deflationary.

In short, the key to a real inflation is not just in gold and oil, but in wages. So what do you say people – are your wages / salaries going up? Any prospects for getting cost of living raise soon? Let us all hear it below! Looking forward to the responses.



Comments are closed. Thank you.


26 Comments so far
  1. Marty Riske January 12, 2006 11:20 pm

    Here in Fargo, N.D. the minimum wage is meaningless. Starting wages, if you can hire someone at starting, is $6.50 with Domino’s Pizza and Taco Bell paying a $50.00 sign up bonus. Wait staff is making a killing with tips.

  2. john January 13, 2006 12:08 am

    yes I work at intel and they said that this year they are going to bring everyone who is successful in their yearly reviews up above the national average for pay. they want to be in the top percentage of companies to stop people from leaving and to make up for 5 years of 0% to 1% annual raises.

  3. Carol January 13, 2006 4:46 am

    No. I am a contract computer programmer. My salary has steadily decreased each and every year since 2000. After each contract has ended every job offer after that is for less that the preceeding one. In fact my salary right now (well I was just recently laid off - India outsourcing - so now it is zero) but before I was laid off my salary was 68% of what it was 5 years ago in 2000. Hows that for wage inflation?

  4. Administrator January 13, 2006 5:23 am

    Thanks for the comments so far. I find it interesting that in the poll, on this page, with 34 votes so far, over 75% of the people have indicated that they are / have received a cost of living raise. This is the opposite of what I expected.

    I think we’d all like to hear some more stories about how things are going in different professions. The contract computer programmer above clearly has it tough. But Wall Street has had the highest aggregate bonuses since 2000.

    What I have noticed in Boston is the number of immigrants, doing so much of the grunt work. The movers, the apartment maintenece staff, doormen, taxi drivers, counter help at the bagel shop…We have a friend who runs a restaurant, and just about all of their kitchen help are immigrants. A couple that I’ve talked to told me flat out that they were illegals.

    On the one hand, people complain about the illegals, but it seems to me that they are doing the work that no one else wants to do anymore.

    The government talks about wanting to stop it (illegal immigration), but I think that the policy encourages the ones with the real desire to come. It is hard to get here and to stay here - you have to be tough, smart and really have the will to succeed. These are all the qualities of the immigrants that made America great in the first place. The ones that I have seen work harder than most Americans would or believe they should…

    In the end, it does put downward pressure on wages, but it makes it affordable for the rest of the people to eat at a restaurant, shop at Walmart, etc.


  5. Steve January 13, 2006 5:37 am

    It is not that citizens/Americans do not want the work, they won’t/can’t work for the sub par wages paid the illegals. Illegals in NC are paid less than state minimum, no health care, no Soc Sec. Employer gets a worker for half the price. Are the prices lower in restraunts, housing prices lower, lawn care lower?…NO! Are the employers richer? Of course. I pay the illegals health care as they can go to the ER at the hospital and get FREE care.

  6. EK January 13, 2006 8:00 am

    In the engineering field pay increases occur when one changes jobs. I took a new job in 2005 and received a 25% pay increase plus a sign on bonus. However I was underpaid in my previous position.

    It is nonsense that illegal immigrants do jobs that would not get done with out them. Americans would pick poison-ivy if it paid enough. If a product requires cheap illegal immigrant labor(which is actually subsidized by the taxpayer) then the product should actually cost more. Thus price increases due to inflation are being suppressed by illegal immigration. But the notion of illegal immigration affecting the economy is a whole thread unto itself…

  7. jakbqwik January 13, 2006 8:15 am

    I’m an executive recruiter (self-employed) working in the Banking and Healthcare arenas. The candidates I’m placing (Commercial Lenders & Pharmacists) in both of these sectors have seen wage increases averaging at least 5%-10% PER YEAR for the past three years. Other recruiters I network with are seeing the same thing. Wage inflation is probably higher than most people realize.

  8. jakbqwik January 13, 2006 8:23 am

    As a follow-up, I just pulled up some old data that you may find interesting. These are the average salaries for Staff Pharmacists I’ve placed since 2002, and I’ve placed an average of 8 Pharmacists per year into new positions since ‘02:

    2002: $81,120
    2003: $86,320
    2004: $92,560
    2005: $99,965

    Based on the new Pharmacist searches I’m working on right now, I anticipate the average salary of my Pharmacy placements to be within the range of $106,000 for 2006…but of course, this is just an estimate.

  9. Kelleher January 13, 2006 9:40 am

    The government price inflation numbers are pure fiction. In my business we’re seeing prices for raw materials, transportation, and energy increasing at 15%-30% annual rates. To stay competitive, companies either have to cut expenses or raise prices. But those only go so far and eventually these costs will be passed on to customers.

    IMO wage inflation will be a huge issue this year as workers begin to demand higher pay to compensate for obvious price increases they see every day at the grocery store and gas pump.

  10. Carol January 13, 2006 9:42 am

    Hummmm, I am amazed I seem to be the only one on this forum who is experiencing wage DEFLATION. I have been in the bear/deflation camp for about 5 years now in what I was expecting to happen in the economy. I wonder if my expectations have become a self fulfilling prophecy or if wage deflation is only happening in IT (and manufacturing, and airlines, and ??).

    Anyhow, it is totally possible that I was very over paid in the Y2K runnup and that is why my wages have been going down (moderating) since then. I would love to hear from any other IT professionals on this subject.

    As an aside, from what I am reading here, I think Marc Faber is right, to heck with deflation run for the hills …. we are entering into hyperinflation!

  11. ChemicalGal January 13, 2006 10:16 am

    I think we are seeing wage deflation in most of the work areas. Not in health & finance yet, but think that will change soon.
    My company that I have worked for for 28+ years has been touting record profits, but when it came to wage increases went with 1% to 3% and 2 years ago none at all. So I don’t think we can consider that wage inflation.
    Also, if you count benefits as part of your salary, those are being cut back too. No more pentions, higher health costs, higher deductibles etc etc.

    As for immigrants, they work for very low wages, live several families to an apartment or home. Americans are just not willing to live this way …. yet.

    I don’t know what industry/industries the ones who got cost of living wages are in, but I would venture to say it’s not in the blue collar or office worker areas. Those are taking hits from every side.
    Chemical Gal

  12. rlancaster January 13, 2006 10:32 am

    I run a large commercial printing company in the Northwest. Printing is a great leading indicator for the economy in general as all businesses have to print stuff most of the time.

    Within this industry ( I’ve been in the industry for 2.5 years having shut down my 8 year old Internet company in the great crash of the dot bomb era) there has been wage stagnation for the past 4-5 years, however that is now starting to change and I think 2006 will show production workers making stronger demands for increases that are overdue.

    With consumer price inflation running higher than reported there is pressure on workers in general to make ends meet. That pressure can only build for so long before it has to be released, and employers can only hold down wages so long before being forced to raise them based on a shortage of trained workers in the marketplace.

    With the Fed running the inflation spigot open now for 10 years + it is a certainty that over time wage inflation will occur, I think we are going to see some catch-up across the US in 2006.

    On a related note I just read some very interesting analysis on business to business marketers (our customers) and their prospects for 2006 - and how they are budgeting internally to meet the demands of the new year. Here are some results of a recent survey that I think clearly speak to an expectation of inflation throughout the year:
    What B2B Marketers are Doing in 2006

    BtoBOnline recently conducted a survey of marketing execs about their plans for 2006. Sixty percent say budgets are increasing, and of those, 73% are increasing 10% or more. When asked what parts of their budget would be increasing, almost three-quarters of the respondents indicated that online spending would increase, followed by a little more than half who planned to increase their use of direct mail.

    Online 72%
    Direct mail 52%
    Events 40%
    Print 33%
    Telemarketing 25%
    Broadcast 6%
    Outdoor 5%

    The +72% who planned to increase spending for online marketing is rather incredible. Web site spending was cited by 30% of the respondents, and 22% were planning to use their increased dollars on e-mail promotions.

    When you subtract the percentage who plan decreases in spending from those who plan increases, the results become even more interesting. The spending for online media still stands out rather dramatically, but direct mail certainly holds its own.

    Online 69%
    Direct mail 41%
    Events 26%
    Print 12%
    Telemarketing 11%
    Broadcast -6%
    Outdoor -10%

    The most important objective for marketing spending is customer acquisition. This sounds pretty clear to me: the strategy for 2006 seems to be to pique people’s interests with direct mail, e-mail, and a good Web site. If print businesses have no fluency in e-mail or Web sites, then there’s no way they can claim to be in the “communications” business, and they will play a diminishing role in the overall business communications market.

    Fed inflation floats all boats, eventually! I guess at the end of the day, in business, its best to make hay while the sun shines (regardless of whether you believe in the phoney economics of it all or not).

    A brief comment from a previous thread about us as a group collectively getting off our behinds to change the current world order, etc. For me that is what my participation in these websites and blogs, etc. is all about. I’m not here to learn how to make more money from the collective wisdom of the bloggers, I’m here to share what I know and feel about the state of the world and in some small way, I hope, help contribute to some positive change - - and at the very least to alert some newbies to this subject to some of the realities of our predicatment.

    As far as the IMF/World Bank/International Banking conspiracy goes, exposing it is a job in and of itself. Getting people to understand where their money comes from, who creates it, who controls what, and where this is all potentially going, I believe is a critical function, and a contribution in and of itself. Over the years on the Depression2 site we exposed much of this.

    Personally I’m far more inclined to discuss this kind of stuff than just going on about macroeconomics all day, but you get tagged as a conspiracy theorist if you carry on too much in this space :)

    Anyway, gold is up again today - if you didn’t buy it way back when then you weren’t paying attention.

    Cheers Rich

  13. Kentar January 13, 2006 5:36 pm

    I live outside of Vancouver in the southwest corner of Washington. As of January 1st, our minimum wage went to $7.63 - the highest in the nation. Oregon’s minimum wage also went up on 1/1/06 to $7.50 per hour. This, in effect, forces all the wages on the lower end of the spectrum to increase. I do not mind paying higher wages; however, unless the business owner makes money, higher wages are unsustainable.

    I used to rent a small farm where I grew ginseng. Ginseng takes a considerable amount of capital to get started, takes 3 to 4 years before a crop can be harvested, and requires a significant amount of manual labor - especially during the spring and early summer.

    I spent most evenings and weekends out in the field pulling weeds. When the weeding would get too far ahead of me, I’d have to hire people to help me - about 10-15 work days per year. At first, I asked the people at the freeway off ramps holding signs that said “Will work for food” if they wanted a job pulling weeds. Amazingly, they all had physical ailments that precluded them from doing this. One gal at work said that her high school son wanted to earn some money and was willing to work for me. We started at 7:30 AM and by noon, he was too tired to go on. I gave him $40 since I only had twenty dollar bills and he accused me of cheating him. He thought that I should give him at least $100 for his “work.”

    The best workers spoke the least amount of english. I doubt that they were here legally, but I wouldn’t ask. The day before I needed workers, I’d go see Pablo, who owned a taco van. He made the arrangements and the workers were at the gate at 7:30 ready to work hard all day long. They worked hard, all the while talking, laughing, and singing.

    Farmers are not in a position to dictate the prices they receive for their commodities. If the weather is good, there is usually a surplus and the unit prices usually drop. Nonetheless, that’s better than the alternative when the harvested quantities drop considerably.

    When you are in the grocery store looking at produce, do you really think about all the work and coordination that is involved with getting those vegetables to you? Do you wonder how much it would cost without illegal aliens? I do.

    If our leaders in DC successfully crack down on illegal immigrants, expect price inflation to accelerate on any locally produced, labor intensive items. Once the workers have legal status, their employment opportunities expand considerably. Why work in the fields when they can get much more money in the construction business for the same hard work?

    I quit growing ginseng in 2002 after 6 1/2 years of hard work (I estimate that I put about 5000 hrs into it) and still without making any money. I’m a mild mannered engineer by day. This year, I received a little more than 3% “cost of living increase.”

  14. Vinny January 13, 2006 6:01 pm

    I worked in the produce department of a small organic food store in New York for a short period of time. All of my co-workers were immigrants. One girl was from Nepal - she worked at our store and at Whole Foods, and went to school, too. She had won the green card lottery and her family insisted that she shouldn’t miss the opportunity to come to America. She missed home, didn’t much like it here, but she worked hard.

    Another guy was Mexican, and finally legal. He said that becoming legal was bad for him financially, because before, he was on a completely cash basis, and saved a lot of money. After he got legal status, he got a credit card, and now he is in debt like the rest of us. So he tells his friends who are illegal to stay that way!

  15. P.S. January 14, 2006 7:36 am

    Carol is correct. I have worked in the IT industry since 1997. My wages could be plotted on a perfect bell curve from then until now. Salary 65% from what it was in 2000.

  16. CG January 14, 2006 7:41 am

    Like Carol, I’ve also worked in the IT field for a long time (16 years seems long enough to me). After 2000, the ‘game’ changed… continuing workers get a pittance for cost-of-living increases (my Fortune Top 25 employer has been giving 3% recently), yet new hires can negotiate a higher wage and/or benefit package from the day they start, IF their specialty is in demand. It’s what I call “last in, wins”. After leaving a long-term job in 1999, I’ve worked for 3 companies, and increased my gross income by 26%. Looking back at my old job, if I’d stayed (it’s public sector, so the pay scales are public too), I would have only seen a 10% increase over that time.

    And with the import of cheaper labor from overseas, particular skill sets have lost value while a new metric is preferred: availability. “Want to go on-call 24/7 to support our facilities in 7 time zones (which we purchased as part of our ill-planned M&A activity)? Then we can talk.” Such is the modern, multimerged large company of today. Never mind whether you have a life in the end; that is secondary to the current fraternity of corporate management. Increased pay may be a consideration, but don’t bet on getting it unless you ask up front. And increased vacation time as compensation for these lost hours? Hah! “Vacation… that is SO 20th-Century.”

  17. AK January 14, 2006 12:26 pm

    Hi all,

    Here is my list of jobs that will see wage increase:

    1. Medical Services for Rich-retiring baby boomers
    2. Financial Services for Rich-retiring baby boomers
    3. Real Estate and House Sales for Rich-retiring baby boomers
    4. Tax-Lawyers for Rich-retiring baby boomers
    5. Investment in Oil Fields for Rich-retiring baby boomers.

  18. Mad Max January 14, 2006 12:55 pm

    The LA aerospace job market is relatively hot. But if you’re already working, it’s easier to get a new job, than a raise. Raises are based on the fraudulent CPI.

  19. JB in Whatcom WA January 14, 2006 6:55 pm

    My wages went steadily down after the dotcom bust in 2000. I’ve slowly job-hopped my way to $5 less per hour than I was making then. The new job will increase quite a bit paywise in 6 months, but still not waht I made in Seattle 6 years ago. My partner took a pay cut to move here and change fields (from tech support back to law enforcement) but has state bennies and is seeing steady wage increases thanks to union advocacy.

    I think wage inflation will only occur in jobs that can’t be outsourced or “in”sourced - i.e. given to an illegal who takes much less pay and no bennies.

    I think anyone who employs illegals should be jailed and all their business assets confiscated. Aside from what the Bush regime is doing to our economy, the undercutting of American workers by illegals is the next biggest job issue.

  20. Peter Scales January 15, 2006 2:36 am

    I am no longer part of the workforce, and haven’t been for the last 7-8yrs. Western Australia is the country’s largest exporter, mostly Iron Ore (and other base and precious metals), LNG and broadacre grains,mostly wheat.

    There is currently a skills shortage in almost all parts of the mining industry, due to Chinese/Indian demand.

    The population is growing and increasingly weighted with expatriate Chinese and South Africans. We have the country’s lowest unemployment rate.

    Though I have no numbers in support, my reading is wage claims at all levels are rising, but disproportionately so where there are skills shortages.

  21. Chris January 15, 2006 2:04 pm

    Westchester NY. Ive been extremely lucky over the last several years in IT (web programming). I was laid off in Jan 2001 after the .com bust and 2 weeks later got another job paying more in the same field at a small successful internet retailer. I have been with that company since and have always received above average raises(except for 2002, no raise due to Sept 11). This year I received a 15% raise but part of that was due to a promotion due to my boss leaving in the middle of a big project (scared the heck out of the CEO that I might leave also).

    I also do consulting and have just raised my rates 12% after 5 years of no increases. To be honest, I raised my rates hoping that the company I consult for fires me.

    I also work for another company part time doing network monitoring. The income from that company just paid off my mortgage.

    In total, I work for 3 companies a minimum of 75 hours per week and have been doing this for several years. Its Sunday evening and Im going to work now, Im starting to get tired.

  22. John January 16, 2006 6:27 pm

    I know it’s not the US, but here in Australia cost of living has skyrocketed in the last few years whilst wages have more or less stayed the same. More oil price increases would really hurt low to middle income earners.
    My basic wage has increased about 1% in two years, way lower than inflation. Things are going to be very hard soon, I think.

  23. Idaho_Spud January 18, 2006 4:46 am

    Not enough wage inflation to suit me. 3.5% this year. It certainly hasn’t kept up with price inflation in the non-discretionary items (food and energy).

    Fortunately I’m in a skilled position that can’t be exported (power generation), or I’d be looking at wage deflation as well… Too bad this isn’t much of a growth industry.

  24. DJDJ January 18, 2006 2:16 pm

    No wage infaltion at all….in fact i am getting less as a Wedding dj then i did 10 years ago. Everybody thinks they can do this job, and they learn the hard way that you really do get what you pay for.

    Secondly I see LOTS of price increses each week at the grocery store, ice cream just went up from $5.69 to 5.99 for 56 ounces, notice how they scammed us last year by eliminating the 1/2 gallon container?

    Hamburger meat is almost $1 a pound more then ground turkey, last year there was less then a 50 cent difference. And sometimes none!

    They are making containers smaller and keeping the price the same even Entemmen’s cakes are 1 to 2 oz smaller

    And poor old cat litter just went up from $3.99 a jug to $4.39

    so when is this going to show up in the CPI? probably never they way they figure it these days.

    I think they scam us by not counting the smaller packages just the price. Plus i hear that as long as UPS or FEDEX only increases their fuel/delivery surcharges it doent get included in the CPI index only a base rate increase which neither has done, but fuel and delivery surcharges, yup… i sure am paying and charging a lot more postage for my ebay sales then last year

  25. Steve January 22, 2006 9:49 am

    Wage inflation? Ha, ha, ha ,ha, ha!

    With continued automation; outsourcing, now including both manufacturing AND services; plus the demise of the American automobile industry (GM and Ford will soon surplus 30,000 workers, EACH) I am not sure what the mechanism is to drive wages higher. There continues to be an ever-widening gap between the haves and have-nots in this country that gives no indication of reversing. Excess capacity and global labor arbitrage will soon ensure that the American worker will be fully competitive with Third World workers at the wage rate of around $5.00 per day. I feel that there is an extremely supportable case for wage DEflation, not INflation!

    However, on the rarified, top end of the scale, there may be some wage inflation. In my personal, financial situation, I am doing quite well, thank you! My concern is that with the present deflationary trends in progress, there is a rapidly approaching tipping point where aggregate demand tanks big-time and we ALL fall into the toilet!

    If the old, classical economist’s definitions are true, that wealth is accumulated labor, and capital is that portion of wealth which is used for production, then we are on the verge of a massive destruction of wealth in this country! The now unavoidable, long-term effects of this destruction will not be moderated by feeble attempts at currency inflation or hyperinflation!

  26. LarryK January 22, 2006 10:07 am

    Oh, yeah, sure lotsa wage inflation. Heck, now that all the manufacturing is killed, I guess we can afford to give a …FEW…. perks to the grunts.

Recent Posts