Labor Cost

Labor Cost-Cutting in the 1990s

From U.S. Department of State

Labor Cost-Cutting in the 1990s

Exacerbating pay gaps between people of different sexes, race, or ethnic backgrounds was the general tension created in the 1980s and 1990s by cost-cutting measures at many companies. Sizable wage increases were no longer considered a given; in fact, workers and their unions at some large, struggling firms felt they had to make wage concessions -- limited increases or even pay cuts -- in hopes of increasing their job security or even saving their employers. Two-tier wage scales, with new workers getting lower pay than older ones for the same kind of work, appeared for a while at some airlines and other companies. Increasingly, salaries were no longer set to reward employees equally but rather to attract and retain types of workers who were in short supply, such as computer software experts.

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This helped contribute even more to the widening gap in pay between highly skilled and unskilled workers. No direct measurement of this gap exists, but U.S. Labor Department statistics offer a good indirect gauge. In 1979, median weekly earnings ranged from $215 for workers with less than a secondary school education to $348 for college graduates. In 1998, that range was $337 to $821.

Even as this gap widened, many employers fought increases in the federally imposed minimum wage. They contended that the wage floor actually hurt workers by increasing labor costs and thereby making it harder for small businesses to hire new people. While the minimum wage had increased almost annually in the 1970s, there were few increases during the 1980s and 1990s. As a result, the minimum wage did not keep pace with the cost of living; from 1970 to late 1999, the minimum wage rose 255 percent (from $1.45 per hour to $5.15 per hour), while consumer prices rose 334 percent. Employers also turned increasingly to "pay-for-performance" compensation, basing workers' pay increases on how particular individuals or their units performed rather than providing uniform increases for everyone. One survey in 1999 showed that 51 percent of employers used a pay-for-performance formula, usually to determine wage hikes on top of minimal basic wage increases, for at least some of their workers.

As the skilled-worker shortage continued to mount, employers devoted more time and money to training employees. They also pushed for improvements in education programs in schools to prepare graduates better for modern high-technology workplaces. Regional groups of employers formed to address training needs, working with community and technical colleges to offer courses. The federal government, meanwhile, enacted the Workplace Investment Act in 1998, which consolidated more than 100 training programs