Yearly pay increases for major labor contracts during the first half of the year averaged only 2.7 percent, the smallest increase in 15 years and a sign that inflation is under control.
One-fourth of workers covered by the survey received pay cuts, while a fifth did not receive an increase.
The small increase was a welcome signal that price increases during the next couple years will remain modest, administration officials said. It was also a boost to prospects that employment will increase. Labor costs are a major contributor to the underlying inflation rate in the economy. In addition, lower labor costs are an incentive for employers to hire more workers.
"Unit labor costs will rise no more than 2 to 3 percent over the next two years at least," said Robert Ortner, Commerce Department chief economist. "And that's very good for inflation, especially with energy and food prices in check."
The small increase for the first half of this year is much lower than the pre-recession wage increases negotiated for the same group of industries studied. Under past contracts, workers received average raises of 6.7 percent each year of the contract and 8.4 percent increases during the first year.
The small labor-cost increase this year bodes well for inflation and would indicate inflation may be less than that projected by the Reagan administration. The administration is forecasting a 4.5 percent inflation rate for 1983 and a 5 percent rate for 1984. "There's an excellent chance we will come in under that," Ortner said.
"The sustainability of the recovery depends on down inflation," Ortner said. "Moderate wage increases will make it possible for more people to go to work."
Lower labor costs should also help American firms become more competitive internationally, Ortner said.
The report covered 8.1 million workers in private industry negotiating units of 1,000 or more workers.
According to the Labor Department report, 1.2 million workers covered under contracts settled between Jan. 1 and June 30 received pay raises averaging 2.7 percent annually and 0.9 percent in the first year of multiyear contracts covered by the survey. Ortner said those figures were the lowest six-month figures since such statistics have been kept, beginning 15 years ago.
About 275,000 steelworkers and 50,000 construction workers accepted pay cuts averaging 6.3 percent in the first contract year, although about half of the construction workers will have those cuts restored by increases later during their contracts. The remainder of the construction and steel workers will have wages cut an average of 0.6 percent every year under their contracts.
In addition, of 3 million workers who came up for cost-of-living reviews, 1.8 million got increases averaging 0.9 percent and 390,000 got decreases. About 800,000 received no change largely because their contracts didn't provide for cost-of-living decreases or because the increase in the consumer price index wasn't large enought to change their pay, the Labor Department said.
Wage increases for about 550,000 will average 5.9 percent in the first contract year. About 135,000 workers will receive decreases or no change in the first year of their contracts, but will receive raises later, the Labor Department said.