Hourly Compensation Posts Record Drop

Dave Johnson

U.S. worker compensation posted its biggest drop since 1947 during the last quarter. The year 1947 is when the Labor Department began tracking the statistic.

The Bureau of Labor Statistics released data today showing a 3.8 percent drop in the first quarter. According to the BLS report, PRODUCTIVITY AND COSTS, First Quarter 2013, Revised,

Unit labor costs in nonfarm businesses fell 4.3 percent in the first quarter of 2013, the combined effect of a 3.8 percent decrease in hourly compensation and the 0.5 percent increase in productivity.

The “unit labor costs” show how much it costs a business to produce one unit of output.

Also, “In manufacturing, productivity increased 3.5 percent and unit labor costs decreased 10.0 percent.”

Note, however, that this may not be as bad as it seems. This might just reflect some shifting because of changes in tax laws. According to Marketwatch,

…the plunge in compensation follows a huge 9.9% gain in the fourth quarter, largely reflecting efforts by companies to speed up bonus and dividend payments at the end of last year to avoid pending tax increases.

The volatility in labor costs “merely reflects the income-shifting that occurred ahead of year-end to avoid the higher tax rates that took effect Jan. 1,” Stephen Stanley, chief economist of Pierpont Securities, wrote in a note to clients.

Over the past four quarters, hourly compensation is actually 2.0% higher and running modestly head of inflation. As a result, economists downplayed the steep first-quarter decline as a tax-related phenomenon that bore little relationship to existing trends in labor costs.

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