Wages Start To Soar

Bad as it has been, the raging U.S. inflation would have been much worse if it had not been for the almost saintly patience that workers have shown in accepting modest wage increases. Now the patience seems to be evaporating. A sudden upsurge in pay raises threatens to give the inflationary spiral another whirl.

In the twelve months through April, average hourly wages of U.S. private nonfarm workers rose a mere 6.3%, trailing far behind a 10% rise in consumer prices. But in May, the first month after the death of wage-price controls, workers' wages rose at a stunning annual rate of 19.1%. Though that probably was a statistical fluke, Otto Eckstein, a member of TIME'S Board of Economists, calculates that wages and benefits for the current quarter will go up at an annual rate of 9.2%, and that the rate will rise, to 9.8% in the fourth quarter. Experts at the Government's Cost of Living Council fear that Eckstein's figures may be too conservative. Says Charles McDonald, head of the Office of Wage Stabilization: "There is definitely a trend now toward the building of a wage explosion."

Since the end of controls, new union contracts have been providing some startling raises, especially in the often pace-setting construction industry. Two weeks ago, San Francisco plumbers and pipefitters won a one-year raise of nearly 18%. Welders and other metal craftsmen in Portland, Ore., signed a contract that will raise their hourly rate a minimum of 38% by October 1976. Delta Air Lines pilots recently won a 25% to 30% raise over 26 months.

Up the Escalator. Workers are showing a new determination to strike, if necessary, to win catch-up wage increases. In the first week of June, more than 300,000 workers were idle in 523 strikes, the highest number for a comparable week in 15 years. Last week some 110,000 strikers in the men's clothing industry went back to work under a contract that will raise their pay about 10% the first year (see following story). Escalator clauses in union contracts are further increasing pay; Eckstein calculates that an escalator in the steel pact will raise wages in that industry 4 1/2% to 5% this year all by itself. Finally, Eckstein believes that many nonunion employers are handing out generous across-the-board wage boosts that they feel they can no longer avoid in a time of double-digit inflation.

Reversing the speedup in wages will be difficult, if not impossible. Workers have a genuine grievance: as pay has trailed prices, inflation has lowered their standard of living. David Grove, also of TIME'S Board of Economists, figures that real disposable personal income (that is, take-home pay adjusted for price increases) has dropped for the past four quarters; in the first quarter of 1974 it fell at an annual rate of 5.6%. That is a longer and deeper drop in purchasing power than occurred during any of the five recognized U.S. postwar recessions. Unfortunately, employers cannot absorb outsized wage increases through higher productivity. Output per man-hour of the nonfarm work force actually dropped at an annual rate of 3.5% in the first quarter. Thus a wage explosion will only force more of the price increases that have made past pay rises meaningless.

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