Lower Wages, Higher Profits

4-29-06, 9:39 am

The new spike in oil and gasoline prices is the last nail in the coffin for workers who hoped to see any real improvement in wages this year. Inflation for 2006 is likely to remain in the 3.4 percent to 3.8 percent range, wiping out average wage increases of 3.0 percent to 3.5 percent and leaving workers with less purchasing power.

Over the past five years, as gasoline prices have steadily increased, profits for U.S. oil production and refinery companies have jumped by an average of more than 30 percent per year, according to the Fortune 500 list released in April.

Revenues per worker are highest in the oil industry, where the top pipeline company pulls in $15.6 million per employee. Exxon Mobil generates $4.1 million in revenues for every worker.

New data released by a number of different sources demonstrate that the rise in profits and the decline in real wages extend well beyond the oil industry.

* Production workers are not the only ones facing a broad decline in real wages. New data on salaries for exempt employees from Mercer Consulting shows that pay for salaried workers at 350 large companies barely kept pace with inflation in 2005. Planned salary increases for salaried employees average 3.5 percent for 2006, which means that their gains will be obliterated by higher consumer prices.

* The flip side of lower real wages is higher corporate profits. As wage increases for exempt employees fell to 3.4 percent in 2004 among the 350 companies studied by Mercer, profits at those companies rose 23 percent. In 2005, the average salary increase of 3.6 percent for exempt employees was wiped out by the 3.4 percent increase inflation, but profits rose 13 percent.

* CEOs at the same 350 companies saw their salary and bonus jump 14.5 percent in 2004 and 7.1 percent in 2005. This does not include their stock grants and other long-term incentives that add millions to their pay packages and represent more than 60 percent of total CEO compensation.

* The new 2006 Fortune 500 list of the largest companies reveals that median revenues per employee for the Fortune 500 hit $400,000 in 2005, up from $300,000 in 2003 and 2004.

* There was little or no change in the number of workers employed. The median number of workers employed by a Fortune 500 company in 2005 was 26,000, down slightly from 26,950 in 2004 and identical to the median for 2003.

* Wal-Mart added 400,000 workers between 2003 and 2005 and remains the largest employer in the United States, with 1.8 million employees working at low wages. McDonald’s, the second largest employer and another low-wage company, added 29,000 workers, for a total of 447,000 employees in 2005.

* Companies such as IBM and General Electric that offer higher-paying positions added relatively few jobs from 2003-2005 but still enjoyed substantial revenue growth.

* Overall, the Fortune 500 increased their number of employees by just 2 percent in 2005, but revenues rose 10.2 percent and profits jumped 18.8 percent.

* The long-term effects of the 2001 recession and high unemployment in the post-recession years can also be seen in the most recent report from PricewaterhouseCooper’s Saratoga Institute, which measures the employer return on wages and benefits for the 2001-2004 period. Corporate profits per full-time equivalent employee jumped 190.7 percent from 2001 to 2004.

* Corporate revenues from each full-time equivalent rose 22.7 percent from 2001 to 2004, while costs for each worker dropped by 2.2 percent. The employers’ return on employee compensation rose 35.7 percent.

* In the U.S. in 2004, for every $1.00 companies spent on wages and benefits, they collected $1.82, according to PricewaterhouseCoopers. This return on the investment in labor is the highest ever reported, and one third higher than the return on labor in Europe.

* The broadest measure of the ongoing decline in workers’ wages comes from U.S. Bureau of Economic Analysis data on GDP. Employee compensation equaled 57.6 percent of GDP in 2003, but dropped in 57.0 percent by 2005. Corporate profits rose from 9.4 percent of GDP in 2003 to 10.8 percent in 2005.

From Labor Research Association