Workers do more, but wages fall short

Massachusetts workers are producing more than ever, and doing it more efficiently, but their earnings have barely budged since the end of the Dukakis administration, a Northeastern University study concludes.

The study, by Northeastern's Center for Labor Market Studies, found the state's median annual earnings, adjusted for inflation, have risen just $546 -- 1.2 percent -- since 1989. Meanwhile, productivity, or the amount produced by a worker in the same amount of time, soared nearly 50 percent in that period.

In other words, the typical employee is working harder, faster, and smarter, but getting few of the benefits, said Andrew Sum, the center's director and study's lead author. Historically, higher productivity has led to higher earnings after inflation. But globalization and other economic forces are breaking the link between productivity and wages, redistributing gains to consumers, corporations, and the richest workers.

For example, corporate profits are grabbing a bigger share of the nearly $300 billion realized from the production of goods and services in the state's private sector, according to the center's analysis of the most recent Commerce Department data. From 2001 to 2004, the share going to profits rose to 34 percent from 32 percent. The share going to employee compensation fell to less than 60 percent from more than 62 percent.

``Despite productivity gains, workers have nothing to show for it in their pockets," Sum said. ``The average worker is just treading water."

Nationally, workers also have seen impressive productivity gains go unrewarded, according to recent studies. One analysis by the Economic Policy Institute, a Washington think tank, found productivity grew 17 percent nationally from 2000 to 2005, but median family income, adjusted for inflation, fell 3 percent.

Some economists, however, disagree the link between productivity and earnings is broken. David Tuerck, executive director of the Beacon Hill Institute, a think tank at Suffolk University, said analyses that rely on median or average earnings present a misleading picture of workers' well-being. Such studies, he said, fail to capture workers moving up the pay scale as they gain skills and experience, a key aspect of the US labor force.

Edward Lazear, chairman of President Bush's Council of Economic Advisers, said in a recent interview that current wage growth follows the pattern of earlier economic expansions, and should soon accelerate in the face of low unemployment and continued demand for workers.

Save for record energy prices, Lazear added, earnings already would be growing faster than inflation.

But the Northeastern study, which tracked earnings and productivity over the course of nearly three business cycles, suggests fundamental economic changes are underway, said Sum. Globalization, technology, and deregulation are expanding the pool of labor and creating fierce business competition, hurting the power of workers to bargain for raises and companies to raise prices.

By increasing productivity, businesses can produce more goods and services with the same or fewer workers. Traditionally, labor cost savings generated by higher productivity were shared by businesses and workers as higher profits and wages, according to Sum. But, in the face of intense competition, businesses increasingly devote such savings to holding prices down.

. The result: Productivity gains go to consumers in the form of lower prices, rather than to workers as higher earnings.

Take airlines. Travelers today enjoy fares essentially unchanged from the late 1980s, even as fuel costs have soared, according to the Air Transport Association, a trade group in Washington. Unable to pass costs to customers because of competition, airlines have cuts jobs and wages, with some slipping into bankruptcy.

Tom Raiche, 49, has worked 17 years at Logan International Airport as an equipment service employee of Northwest Airlines, currently in bankruptcy while it reorganizes. Today, 45 equipment-service employees, doing everything from handling baggage to towing planes, perform the work that 80 did at Logan five years ago, according to Raiche. Wages, however, are 15 percent lower.

``Things are changing so fast," said Raiche, of Saugus. ``I have a 16-year-old son, and now I'm thinking about college, and how I'm going to make that work."

The global competition for jobs, particularly among lower-skilled workers, is also helping to break the link between productivity and wages, according to Sum.

Felicita Rivera, 54, a native of Puerto Rico who speaks limited English, has worked 18 years as a machine operator for a Worcester plastics maker. She earns the minimum wage and hasn't had a raise since 1999, the last time the state increased the minimum wage (The minimum wage rises to $7.50 an hour from $6.75 in January). Meanwhile, on the production line, eight machine operators do the work that 20 did seven years ago.

Rivera, a widowed mother of two teenagers, said her late husband's Social Security survivor benefits, which are paid to her children, have helped keep the household afloat. Still, she said, speaking through an interpreter, ``It's so hard keeping up with the cost of living. Everything goes up every year, except my wages."

Low-income workers, in fact, haven't benefited at all from productivity gains, according to the Center for Labor Market Studies. Productivity in Massachusetts increased about 30 percent in the 1990s, but full-time working women in the bottom fifth of the income scale saw inflation-adjusted earnings fall 1 percent to 3 percent. Those in the top fifth saw earnings rise 16 percent to 56 percent.

Middle-income workers did enjoy modest increases in inflation-adjusted earnings in the 1990s. But most of those gains were lost in the last recession and the weak recovery -- despite double-digit productivity growth, according to the Northeastern study.

``The average worker should be getting a pretty good pay package," said Sum. ``But it hasn't happened."

Robert Gavin can be reached at rgavin@globe.com.