Wages and Benefits See Biggest Rise in Six Years

WASHINGTON—Wages, salaries and benefits paid to American workers rose by 3.7% percent over the past year, the biggest increase in more than six years.

The increase for the year ended in September shows workers still are benefiting from two years of robust economic growth, which slowed this spring as spillover from world financial turmoil hurt American trade. But, before that happened, unemployment sank to a 28-year low of 4.3% in April in May, forcing employers to increase compensation faster than inflation in order to attract and retain qualified workers.

During the year covered by an Oct. 29 Labor Department report, consumer prices rose just 1.5%. Compensation hadn’t risen by more than the 3.7% registered in the latest period since the 12 months ended in March 1992. It rose 4% then, only modestly faster than the 3% inflation rate at the time.

However, last week’s report, which showed a larger-than-expected 1% compensation increase in the July-September quarter alone, reflected an unusually strong 1.9% jump in compensation at finance, insurance and real estate businesses during the quarter.

“This will change in the fourth quarter as the world financial crisis takes its toll on the industry,” said economist Bill Cheney of John Hancock in Boston.

Nevertheless, the report raises questions for Federal Reserve Chairman Alan Greenspan and fellow monetary policy-makers. In September, they began cutting interest rates in an effort to inoculate the American economy from the dampening impact of the global slump.

However, until August, they had been poised to increase rates to slow the economy and prevent brisk wage increases from fueling price inflation.

“If the economy speeds up again, the employment cost index report suggests wages would

park a burst of inflation,” Mr. Cheney said. “You can be sure the index has not dropped off Alan Greenspan’s radar screen.”