AMERICAN WAGES and salaries keep rising steadily, almost impervious to last spring's sharp little recession and last summer's high unemployment. That's a crucial part of the explanation for the peculiarly tenacious character of the present inflation. Most people's wages are clearly being set by processes that have little or nothing to do with supply and demand in the labor markets.
The recent pattern does not offer much encouragement to any of the familiar strategies to hold down inflation. In the year ending September 1979, wages and salaries rose 7.7 percent. They accelerated sharply through last fall and winter. Then, with the recession on and unemployment shooting upward last spring, the acceleration ended. But little improvement followed. In the year ending last September, the rise in wages and salaries was up to 9.4 percent.
It's increasingly obvious that the present high unemployment in the building and automobile industries is owed, in some measure, to the determination of people in those industries to keep pushing for large wage raises, regardless of economic conditions. High unemployment is bad for society, and it's often devastating to the people who are unemployed. But perhaps it's necessary also to think of it as the outcome of a deliberate collective choice, by the people who work in an industry, between more jobs and more pay.
The justification of these large wage gains is usually inflation. Just about everyone in the country claims to have been damaged by past inflation, and wants to catch up with it. The catch-up campaign is encouraged and assisted by some of the statistics that the government publishes. The familiar series on average hourly and weekly earnings, for example, considerably understates the actual rates of rise. Where the postwar generation of young people took their first jobs at relatively low entry-level wages, during the 1970s, it pulled the averages down. That's why the statistics say that average earnings, adjusted for inflation, are lower now than 10 years ago -- although nearly every working person's individual earnings, even after inflation, are actually higher.
That statistical illusion of endless decline affects the way people think about the economy and the way that politics responds. Aware of this distortion, the Labor Department is now computing wage and salary trends that are not affected by demographic change, or shifts of labor from one kind of work to another. The data for the third quarter appeared Friday, and those are the figures cited above. The Labor Department has also begun to publish an even more interesting figure, the Employment Cost Index, which tracks not only wages and salaries paid in cash but the fringe benefits as well.
So far this year the Employment Cost Index has been rising at an annual rate slightly over 10 percent. Since fringes are generally tax-free, it appears that even in this year of recession most working Americans' compensation, taken all together, has suffered very little erosion from inflation -- if any at all. The exceptions are chiefly the several million people who lost their jobs. As long as Americans choose unemployment for the unlucky few, instead of wage and salary restraint for everybody, the prospects of ending the inflation will remain exceedingly poor.