9-03-05, 11:47 am

This Labor Day marks yet another year of decline in the living standards of U.S. workers.

The downward trend in real wages has continued for so long that workers no longer expect an annual wage increase. And the assault on benefits is now so entrenched that many workers don’t receive or expect to receive basic benefits.

A recent survey of 10,000 U.S. workers by Hudson found that almost one-third received no pay increase over the past year. Thirteen percent reported that they had not received a pay increase for more than two years. Nineteen percent reported that they expect their pay to be lower this year.

One-third are working without retirement benefits. Twelve percent are covered by some form of retirement plan, but do not participate because the plan requires out-of-pocket contributions from the employees.

Twenty-six percent are working without health benefits and 16 percent say that they would consider working without health benefits.

By the end of last year, average real weekly wages stood at $277.57 in constant 1982 dollars, down from $279.94 a year earlier and well below the peak of $331.59 recorded in 1972, according to data from the Bureau of Labor Statistics. Average real weekly earnings have dropped in four out of the seven months reported so far in 2005.

Before the last recession hit in 2001, private sector wages and salaries accounted for 44.9 percent of the total national income, according to data from the U.S. Bureau of Economic Analysis. That share plummeted to 43.6 by 2003 as employers cut jobs and wages. But after two years of solid economic growth, labor’s share of the national income remained at a low 43.5 percent in the first quarter of 2005.

The profit picture follows a completely different path. Profits peaked at 10.3 percent of the national income in 1999, then dropped to 8.5 percent in 2001 as the recession hit. Since then, the profit share has steadily grown, reaching 12.0 percent in the first quarter of this year, well above the rates recorded during the best of the boom years in the 1990s.

The diverging paths for wages and profits will grow wider as more companies abandon their broad-based employee stock options plans over the next year. In October, many companies will fall under the new mandatory expensing rules for stock options. Companies with stock option plans must report the expense of those plans in their first financial report filed after the new rule’s June 15, 2005 effective date.

About 14 million U.S. workers received stock options as part of their total compensation before the new expensing rules were installed. For employees, options allow the possibility of very high earnings if the company's stock price does well.

Although the media report heavily on stock options granted to executives, 90 percent of all options are awarded to non-managerial employees. About 15 percent of all union workers and 14 percent of nonunion workers hold stock options, according to a study by Rutgers University.

Because of expensing, a majority of companies that grant stock options to broad employee groups will now offer stock options only to top management. According to a new survey from Mercer Consulting, 58 percent of employers have now reduced the number of employees who are eligible for stock option grants, and 61 percent have cut the number of shares granted. Few employers are replacing the lost stock options with other payments or benefits to make up for the lower long-term compensation that employees will receive.

Companies with employee stock purchase plans are also reducing the discount that employees receive when they buy company stock.

The new expensing rule, Financial Accounting Standard 123R, will bring greater clarity to financial reporting and help shareholders understand the real costs of different compensation plans, but workers who once received stock options will watch their total compensation drop as companies eliminate their broad-based plans.

Labor unions supported the new expensing rule to help protect workers’ interests in large pension fund investments, but now workers who stand to lose part of their long-term compensation will need protection from employer attempts to cut their board-based stock option programs without substituting a new form of compensation of equal value. The decline of broad-based stock option plans is just one more blow to U.S. workers in 2005.

From Labor Research Association