WASHINGTON: Wages and salaries rose at a slower pace in the fourth quarter, indicating workers have limited success bargaining for pay increases even as the labour market improves.

The 0.5 per cent increase in worker pay followed a 0.8pc advance in the third quarter, the Labour Department said on Friday. The agency’s employment cost index, which also includes benefits, climbed 0.6pc in the fourth quarter from the previous three months.

“There’s still a lot of slack in the labour market, mostly because of the low participation rate and recent drop in the labour force,” Nariman Behravesh, chief economist at IHS Inc in Lexington, Massachusetts, said before the report. That is “continuing to put some downward pressure on wages — not that they’re falling, but they’re not going anywhere, either.”

Bigger paychecks have eluded American workers even as employers added more positions in 2014 than at any time in the last 15 years. At the same time, with the jobless rate approaching the range Federal Reserve policy makers say is consistent with full employment, companies may soon have to consider higher wages to attract and retain workers.

The US economy expanded 2.6pc in the fourth quarter after a 5pc advance in the prior three months, another report showed. The slowdown reflected a decline in business spending on equipment and a decrease in military outlays. Consumer purchases increased at a 4.3pc pace, the fastest since the first quarter of 2006.

The median forecast in a Bloomberg survey of 60 economists called for a 0.6pc increase in the employment cost gauge. Estimates ran­ged from gains of 0.3pc to 0.8pc. The index measures not only costs of wages and benefits, but also employer-paid taxes such as Social Security and Medicare.

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, February 1st, 2015

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