Budgets for U.S. salaries barely keeps up with cost of living: report

The Conference Board said U.S. firms are budgeting for 2010 salary increases of below 3 percent, the lowest level in the survey's 25-year history.

“U.S. workers will continue to face downward pressure on their salaries and wages,” said Linda Barrington, managing director at The Conference Board and co-author of the report. “For the economy this is a concern because salaries translate into consumer spending,” Barrington told Reuters. “We try to get people to spend more, but businesses are reluctant to pay them more. That's the 'Catch 22' of the recovery.”

The median forecast of budgets for 2010 salary increases now stands at 2.8 percent for all employee groups except executives. Meanwhile, the 2010 inflation rate should be 2.6 percent, the Conference Board said.

Salary experts typically make sure salary structures move “in lock step with inflation,” said John Gibbons, program director at The Conference Board.

Projected salary gains of near zero percent after inflation mean employers assume there is sufficient supply of labor to keep demands for salary increases subdued, regardless of cost-of-living increases, he said.

The small increase in money budgeted for salary increases is consistent with historically low compensation growth reflected in government compensation measures.

According to the U.S. Bureau of Labor Statistics' Employment Cost Index released last week, in the 12 months to December 2009, total compensation grew by 1.5 percent while consumer prices rose by 2.7 percent, meaning that, adjusted for inflation, total compensation fell by 1.3 percent.

The Employment Cost Index's increase is the lowest since the BLS survey began in 1982; prior to this recession, the 12 month percent change never went below 2.7 percent.

Even if the U.S. economy is about to start producing new jobs again, recovery in compensation is probably a few years away, said Gad Levanon, associate director, macroeconomic research at The Conference Board.

Levanon said in the last three recessions, compensation began to accelerate only several years after employment bottomed.

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