June 21 (Bloomberg) -- Companies including FedEx Corp. and Procter & Gamble Co. have begun to raise prices as demand for their products strengthens. U.S. workers aren't enjoying the same ability to win pay increases.

A 2.2 percent rise in wages in the 12 months through May has been more than offset by a 3.1 percent gain in consumer prices. It's unlikely that employees will get raises that outpace inflation over the next five to 10 years, said William A. Niskanen, former acting chairman of the President's Council of Economic Advisors during the Ronald Reagan administration.

``I don't see any substantial increase in average real wages for some time,'' said Niskanen, who is now chairman of the Cato Institute, a Washington research group. Niskanen and other economists cite global competition, which forces companies to keep costs down, shrinking union clout and continuing slack in a labor market with an unemployment rate of 5.6 percent, up from 4.2 percent when the last recession began in March 2001.

The disparity between pay and prices may keep President George W. Bush from fully capitalizing on the economy's addition of 1.2 million jobs this year, the best five months of job growth since 2000, as he runs for re-election, said political analysts including Thomas Mann of the Brookings Institution in Washington.

``The stagnation in wages leaves open a big target'' for Democratic challenger John Kerry, Mann said. In terms of pay, ``a lot of Americans have been left behind,'' he said. ``Kerry now has an opportunity to ask, `Are you better off now than you were four years ago?'''

Skimping in Rockton

The answer is no, said Chad Maurer, a 31-year-old Rockton, Illinois, machinist. Maurer said his pay has risen 5 percent since 2000. Consumer prices have risen 8.3 percent in that time, and his share of premiums for the medical insurance his employer provides has surged by more than 60 percent. Though he makes $17 an hour now, he can't buy as much as he did in 2000, he said.

``We're trimming our discretionary spending -- eating out less often, for example,'' Maurer said in an interview. He said he asked managers at the machine-tool company where he works for a raise and was told the company couldn't afford it. ``I'm not expecting one,'' Maurer said, ``but if I don't get a raise soon, I'm going to have to start looking for something else.'' He said he won't vote for Bush in November, though last year he thought he was going to vote for him.

In a Gallup Organization survey of 1,000 adults on June 3-6, 40 percent said the economy was their biggest concern, topping the Iraq war and all other issues. Fifty-eight percent of those questioned said they disapproved of the way Bush, 57, was handling the economy, up from 56 percent in May. The poll had a margin of error of 3 percentage points.

Kerry vs Bush

A June 3-13 poll by the Pew Research Center, a Washington polling organization, found the president and Kerry in a statistical tie in voter support. Of the 1,426 registered voters surveyed, 48 percent said they would vote for Bush if the election were held today and 46 percent said Kerry. The difference is less than the poll's 2.5 percent margin of error.

Kerry, a four-term senator from Massachusetts, took aim at the ``wage recession'' as he began what his campaign aides said was a two-week attack on Bush's handling of the economy last Tuesday. ``A rising tide is supposed to lift all boats,'' Kerry, 60, told the AFL-CIO's annual convention in Atlantic City, New Jersey. ``The middle-class boat is taking on water. I believe we can do better than rising costs and shrinking incomes.''

On Friday, Kerry proposed raising the minimum wage to $7 an hour from $5.15, a move that he said would benefit more than 7 million low-income workers. Opponents of higher minimum wages, such as the U.S. Chamber of Commerce, the National Association of Convenience Stores and the National Federation of Independent Businesses, say it may prompt employers to hire fewer low-wage workers and lead to higher unemployment.

GDP Growth

Even with the recent surge in jobs, the economy has had a net loss of 1.5 million jobs during Bush's term, including 2.9 million manufacturing jobs, which typically pay more than the service jobs that account for most of the positions now being added.

In his weekly radio address on Saturday, Bush said the U.S. economy has ``defied gloomy predictions of pessimists,'' and was ``healthy, vibrant and growing.'' The president said ``many' of the jobs being added are ``in industries that pay above-average wages, such as construction and education and manufacturing.''

The nation's gross domestic product, the value of all goods and services, expanded 5 percent in the 12 months ended in March, the most since 1984. GDP grew by 4.4 percent in the first quarter, up from 4.1 percent in last year's fourth quarter.

Raising Prices

As the economy grows, some companies are finding it easier to boost the money coming in than workers are. Caterpillar Inc., the world's biggest maker of earthmoving equipment, and consumer products maker Procter & Gamble are among the companies that have announced U.S. price increases in recent weeks.

Procter & Gamble, the largest U.S. household-products maker, has said it would raise the prices of its Folgers coffee sold to restaurants, businesses and wholesale clubs by as much as 6 percent because of the rising cost of raw beans.

FedEx Corp. has succeeded in imposing surcharges --temporary price increases -- in a market where passenger airlines including Continental Airlines Inc. have run into buyer resistance. FedEx's freight division increased its rates 5.9 percent May 24 because of higher costs to expand and operate its fleet.

After-tax profits of U.S. corporations soared by 36.7 percent last quarter from the year-earlier quarter, the Commerce Department said last month. The Federal Reserve Bank's latest so- called beige book, a report on current regional economies, indicated that wages, by contrast, remain little changed. ``District reports indicated little or muted upward pressure on wages, although the rising cost of health insurance remained a key issue,'' the Fed report said on Wednesday.

Consumer Sentiment

``Companies have pricing power, but workers don't,'' Barry P. Bosworth, a Brookings Institution economist in Washington who helped administer the Nixon administration's wage-price controls in 1971 and 1972, said in an interview.

Rockton's Maurer said the disparity between the rise in profits and wages makes his own situation all the more frustrating. ``I think the corporate greed has really gotten in the way of the middle-class and the working people,'' said Maurer, whose paycheck supports a wife and three children.

Surveys of consumer sentiment in April and May by the University of Michigan showed Americans expect consumer prices to be rising at a 3.2 percent rate a year from now, more than enough to offset predicted gains in wages.

Tom McKeever, a 40-year-old computer specialist at the University of Michigan in Ann Arbor, said in an interview he doesn't expect to see his pay to grow much over the next few months, even in the face of accelerating inflation. ``At least not where I work,'' he said.

Medical Costs

Karen Kenny, a 44-year-old secretary from Moon Township, Pennsylvania, said she and her husband don't feel the same optimism about the economy that Bush and companies do. ``Even though we have jobs, the price for gas and other things is going up and it's taking a toll on our budget,'' she said in an interview. ``We're not looking to do anything extravagant -- just make ends meet.''

As the Fed's beige book suggested, soaring medical insurance costs are eating up some of the money that otherwise might have been available for wage increases. Employers' costs for providing health-care coverage for their workers probably increased by 13.9 percent in 2003 and may rise by 14 percent to 15 percent in 2004, according to the Kaiser Family Foundation's annual survey of businesses, published last September.

Union Slump

Company spending on employee medical insurance has risen to 7.4 percent of total compensation in 2002, from 6.3 percent in 1990, 4.4 percent in 1980 and 2.4 percent in 1970, according to the Employee Benefit Research Institute in Washington, which tracks such statistics.

Shrinking union power also has hurt workers' ability to extract wage gains. According to the Labor Department, unions now represent about 9 percent of the private sector workforce in the U.S., down from 16.5 percent 20 years ago. Employment in manufacturing industries, a mainstay of union membership, has been falling steadily since the mid-1950s.

Joel Popkin, a former senior Bureau of Labor Statistics economist now working as a private consultant, predicts that wage increases will remain at 3 percent or less in nominal terms -- before accounting for inflation -- for the remainder of this year and into early 2005. A ``Wage Trend Indicator'' index that Popkin has compiled for BNA, Inc., a Washington-based publishing company, fell to 98.26 in the second quarter from 98.37 in the first quarter.

Wage Pressure?

The 2.2 percent rise in average hourly earnings for the 12 months through May, up from a 1.6 percent rise for the same period ending in February, has some economists predicting that wages will have a more significant impact on the economy. With a 2.6 percent rise in the cost of employee benefits, businesses had to pay 0.8 percent more in labor costs for each unit of production in the year through May.

``Wage pressure continues to rise,'' International Strategy and Investment Group. Inc., a Wall Street consulting firm headed by economist Edward Hyman, said in a June 15 report.

Economists such as Stephen S. Roach, chief economist at Morgan Stanley & Co. in New York, say they fret that continuing increases in the cost of wages and fringe benefits may contribute to rising inflation. Over the past three years, falling unit labor costs ``have helped check inflation,'' Roach wrote in a June 1 letter to clients.

Historically Small

The recent wage increases are still small by historical standards, and after inflation they disappear entirely, Labor Department figures show. ``The pickup in wages doesn't look very decisive,'' Lyle E. Gramley, a former Federal Reserve governor now a senior economic adviser at Schwab Soundview Capital Markets in Washington, said in an interview. ``If we didn't have evidence that labor markets were improving, you'd have to dismiss this as unimportant.''

The rise in wages still isn't steep enough to push unit labor costs to ``an inflationary plateau,'' Federal Reserve Chairman Alan Greenspan said in testimony before Congress last week.

``It's very clear that the benefits of the growing economy are going largely to profits, not wages,'' Jared Bernstein, economist at the Economic Policy Institute, a labor-backed research group in Washington, said in an interview last week. ``You've got people crowing about wage growth when it's falling behind inflation. It makes no sense.''

Rockton machinist Maurer agrees. ``Bush could have had my vote in 2003, but he's not going to get it now,'' he said, citing not only his small boost in wages but the administration's handling of the war in Iraq. ``Kerry's a flip-flopper, but I don't see any alternative. I don't think Bush has been honest with the American people.''

To contact the reporter on this story: Art Pine in Washington apine@bloomberg.net.

Last Updated: June 21, 2004 01:16 EDT