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Worker Wages Rise Faster Than Inflation, Job Market Improves

By Jeremy W. Peters
and David Leonhardt

After four years of barely keeping pace with prices or falling below them, wages for most American workers have begun rising significantly faster than inflation.

With energy prices now sharply lower than a few months ago and the improving job market forcing employers to offer higher raises, the buying power of American workers is now rising at the fastest rate since the economic boom of the late 1990s.

The average hourly wage for workers below management level — everyone from school bus drivers to stockbrokers — rose 2.8 percent between October 2005 and October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

In recent years, many Americans grew anxious about the future and economists questioned whether the recovery from the 2001 recession would ever produce genuine gains for ordinary workers.

The fall in unemployment to 4.4 percent and the recent surge in wages, however, raise the prospect that the job market could be on the brink of another strong run, much like the one that lifted incomes in the late 1990s.

“The labor market is pretty tight right now, so it’s not a huge surprise that we’ve started to see big wage gains,” said Nariman Behravesh, chief economist for the research firm Global Insight. “I think the big surprise is that it took so long.”

Still, there are a number of economic forces at work that raise doubts about whether the recent gains are the start of another boom. Instead, economists say, it is possible the improvement may turn out to be little more than a temporary spike.

For now, though, with the number of unemployed Americans who are actively seeking work at a five-year low, help-wanted signs are proliferating again and many businesses are having a harder time finding employees.

That means even workers like Mercedes Herrera, an immigrant from Mexico who cleans bathrooms at San Felipe Plaza, a high-rise office building in Houston, are enjoying more leverage with their employers. Last month, Herrera’s union, the Service Employees International Union, settled a month-long strike and secured raises of more than $2 an hour over the next two years for some 5,300 janitors in Houston.