The Payroll Factor: More work, less pay, has a price tag

These days, workers across the United States are being paid less for the same work they, or others, did five years ago. Employers may be saving money this way, but according to the U.S. Department of Labor, the efficiency of U.S. workers grew at a slightly slower pace in the spring as companies sought to produce more with fewer hands and less pay. The department reported on Aug. 1 that productivity ? the amount an employee produces for every hour on the job ? grew at an annual rate of 2.2 percent in the quarter. That was down from a 2.6 percent growth rate in the first quarter. Economists were forecasting productivity to pick up slightly to a 2.7 percent pace.

Meanwhile, growth in compensation ? wages and benefits ? also slowed as companies were less generous amid troubles in the economy and uncertainty about their own prospects. Unit labor costs slipped to a 1.3 percent pace in the second quarter, from a 2.5 percent growth rate in the first quarter, the department said. Unit labor costs measure how much companies pay workers for every unit of output they produce. Economists look to this barometer for clues about inflation.

The department?s data on compensation matched economists? expectations. The economy grew at a 1.9 percent pace in the second quarter, up from a 0.9 percent growth rate in the first quarter. The economy?s growth rate reflects the value of all goods produced in the United States. In the second quarter ? as has happened all year ? employers cut jobs. Nearly a half-million jobs have disappeared during the first seven months of the year.

Companies have been trimming their payrolls and trying to satisfy customer demand with fewer workers as they cope with fallout from the housing and credit debacles, along with high prices for fuel and other raw materials. Confronted by problems at every turn, the Federal Reserve, the nation?s central bank, decided to hold a key interest rate ? the rate the government charges for lending a few chosen banks money ? steady at 2 percent. The Fed is in a fix: It cannot afford to lower the rate because it could worsen inflation. On the other hand, raising rates too soon could hurt the economy and the already crippled housing market.

Fed Chairman Ben S. Bernanke is not the only one sweating. Other central bankers around the world are feeling the pressure, too. There are signs other countries have caught the cold, as economies slow from Asia to Europe. That?s why the value of the U.S. dollar is rebounding against the euro and the Japanese yen. A stronger U.S. currency affects dollar-denominated commodities, such as oil, as it makes them more expensive to holders of other world currencies. Moreover, concerns that slowing global growth will reduce demand for fuel led to a further slide in crude oil prices, which have been falling since the end of July. A stronger dollar also boosts the appeal of U.S. assets, such as stocks and bonds, relative to assets in other markets. That appeal may very well make investors forget the yearlong credit crisis, the U.S. housing slump and concerns that the economy might be in or near recession.

Still, some strategists contend that the feel-good factor, along with temporary regulations to protect the battered stocks of key financial firms, might be tough to propel the market higher through the end of summer in September. Maybe no one should complain about less pay because, as is often repeated, high wages put a strain on small businesses, which create most of the jobs in the country.