That could become a real problem.
You can see what's happening by comparing two figures. One is the annual cost- of-living increase in retiree benefits. The other is the year-over-year gain in weekly earnings for workers in the private sector. If workers--- the people who pay the payroll taxes that pay the benefits for retirees--- start to see that wages for not working are growing faster than the wages for working, we can expect some very deep discontent.
And that is what is happening.
In mid-October the Social Security Administration announced a 4.1 percent increase in benefits for 2006. All you had to do to collect it was wait by your mailbox or, better still, wait for the money to be automatically deposited in your checking account. Of course, you had to be among the 47 million retirees, disabled workers, dependents, and survivors receiving Social Security benefits.
It was the largest increase in more than a decade. Many seniors, who regularly complain that the annual COLA has nothing to do with the real world, felt a large increase was way overdue. Many also noted that the increase would be much reduced by the 13.2 percent increase in the Medicare Part B premium and the new premium for Medicare Part D for prescription drug coverage.
In fact, their complaint isn't unreasonable.
The average benefit check, $963 in 2005, will increase $39 to $1002 in 2006. However, since the Medicare premium will increase from $78.20 a month to $88.50 a month, or $10.30, the net increase will be only $29 a month. That's not a lot of money, even when you dole it out in Happy Meals.
But the real trouble begins when those who work compare the changes in their paychecks to changes in retiree paychecks. Workers received average pay increases of 3.5 percent this year. Next year is expected to bring more of the same. Worse, just as retirees can complain that medical insurance expenses are squeezing their real increases, workers with private health insurance are in the same bind. Most workers are facing higher premiums and higher deductibles in private health insurance.
And that doesn't count the people who don't have any health insurance at all.
You can see just how nasty this is getting by comparing changes in the official cost-of-living index since 2000 with changes in Social Security benefits and changes in workers' wages. For this year and next, Social Security benefit increases have beaten average worker wage increases. If you look back to 2000, workers and retirees are neck and neck. Worse, income increases for both are slightly behind the increase in inflation for the period. For all those who are deemed "rank and file" workers, all the benefits of increased productivity are going to someone else.
And if workers look over to the retirees, who are no longer dealing with job stress, downsizings, outsourcings, and all the other miseries of life in corporate America, they are likely to start looking for a better deal. We haven't had many big-time strikes in this country for years, but I would not be surprised if the word "strike" re-entered the language of daily life.
Workers and Retirees Losing to Inflation
|Each column shows the increase, in percent, over the previous year. For both the CPI and Workers' wages the figures are based on the 12 trailing months through October.|
|Year||CPI||Social Security||Workers' Wages|
|2006||4.3% (Oct.)||4.1%||2.9% (Oct.)|
|Sources: Bureau of Labor Statistics, Social Security Administration, Economic Indicators|
We could stop here and note that everyone, retirees and workers, appears to be losing out. Only top-dog bosses and top-gun employees are getting real wage increases. But there is a more important point:
It is expected that retired workers Social Security benefits keep pace only with inflation. That's how the system was designed. It is not expected that workers' wages keep pace only with inflation. Long term, workers wages are supposed to rise with productivity and inflation. That's how each generation has enjoyed a higher living standard than the previous generation.
So far, this century isn't looking too good.
On The WebEconomic Indicators---Average earnings and increases
Bureau of Labor Statistics---CPI release for October
Social Security benefits increase record