Will wage inflation occur?

March 7, 1997: 9:39 p.m. ET

Analysts disagree on productivity continuing without increased wages
From Correspondent Ceci Rodgers

CHICAGO (CNNfn) -- Bruce DeMent employs 65 highly skilled workers at his polyurethane molding plant just outside Chicago.
     He complains workers are scarce and come at a premium. So, like other employers who want to remain competitive, DeMent found another way to keep growing the business.
     "We knew that we had to begin with a capital intensive program to try to create an environment where our workers could be more productive," DeMent, Kastalon president, said.
     For the price of upgrading plant equipment, DeMent saved four or five times that amount in labor costs.
     His solution is a clear example of how productivity gains are keeping wages, and inflation, stable.
     "This is the best environment for not only employers but employees, because we're really getting down to the most efficient use of all resources in our economy," Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, said.
     But Fed Chairman Alan Greenspan says job holders are becoming bolder, and may soon be secure enough to demand more money.
     One example is United Airlines' recent deal with its pilots and machinists -- the company doubled its initial salary offer.
     Other analysts say workers are still worried about layoffs.
     "Companies, through their downsizing, continue to take the steam out of the wage inflation engine by cutting people when the pressure gets too high," John Challenger, executive vice president at Challenger, Gray & Christmas, said.
     The issue has economists divided. Are we in a new era of endless productivity gains, or is wage inflation just waiting in the wings to pounce on the six year old economic expansion?