NCPA - National Center for Policy Analysis

Wages Booming In Tight Service Sector

December 5, 1997

Wages, salaries and benefits among service workers have shot up since last year, with no end in sight -- thanks to a tight labor market.

  • In the third quarter, service workers cost their bosses 4.5 percent more than a year ago.
  • Increases in worker compensation for all sectors were up a moderate 3 percent, thanks to weaker employment costs in goods-producing industries.
  • Consequently, economists are watching the service sector closely to determine whether the higher labor costs will translate into higher prices for services.
  • Experts say service providers are under a great deal of pressure from their biggest customers to keep a lid on prices -- particularly those which must compete in world markets.

Since service costs account for 30 percent of the consumer price index, any increase in prices would eventually show up as inflation. That hasn't happened yet, but if and when it does, other components -- such as rental costs and falling prices worldwide -- are expected to offset service cost increases.

The Federal Reserve's latest survey of businesses in its 12 districts found that Asia's financial crisis was putting enough downward pressure on prices in November to offset wage pressures.

Source: Sherry Kuczynski, "Will Fat Paychecks in Services Spell Inflation for Consumers?" Investor's Business Daily, December 5, 1997.


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