If This Is A Boom Why Does It Feel Like A Squeeze?

By Daren Fonda

Judging from the grim faces of the cashiers, clerks and butchers picketing California supermarkets, you would think we were in a deep economic slump. Golden State grocery workers are on strike for the first time in 25 years, over a plan by Kroger, Safeway and other chains to shift a bigger chunk of the cost of health care to their unionized labor force of some 70,000. Under competitive siege from nonunion superstores like Wal-Mart, whose health packages for hourly workers are stingier, the grocery chains complain that they are paying 50% more on health coverage than they were four years ago. In full-page ads in California newspapers, they proclaim, "We simply cannot pass these costs along to our customers."

But passing the medical buck to staff members isn't going over well, either. Norma Perez, 30, picketing with her three kids outside a Ralphs in North Hollywood, says that under the chain's proposed policy, she and her husband would incur an additional $500 or so a month in medical costs--jeopardizing mortgage payments on their house outside Los Angeles or putting the kids' health at risk. "California is already down, and imagine if we all go apply for medical welfare," says the cashier. The supermarkets dispute such dire predictions. As of last week, the two sides were aisles apart on a deal.

These are not happy times for U.S. workers. The unemployment rate is 6.1%, and cash-strapped companies have been asking workers still lucky enough to have jobs to pay more for health care. So the startling announcement last week that the American economy surged 7.2% in the third quarter--the most torrid rate of quarterly expansion since 1984--has many wondering whether this is, at last, the start of a sustained recovery that might pull workers out of their funk. Until that happens, strapped workers and the unemployed are wondering why, if the growth rate is so high, they feel so low?

The impressive rise in gross domestic product (GDP) was fueled by strong exports, consumer spending and housing-related expenditures. Business spending increased 11.1%, the second straight quarterly rise for a sector that's critical to any sustainable turnaround. Corporate profits for firms in the S& P 500 are expected to be up 20%, on average, from a year ago. And consumers continue to anchor the economy. The summer tax cuts pumped $13.7 billion into their wallets, igniting a 6.6% rise in spending. "Consumers spent aggressively on everything from cars to homes," says economist Mark Zandi of Economy.com

Even so, workers remain tense about nearly everything--job security, benefits costs, puny raises. A nationwide health-care squeeze is contributing to these concerns. Insurance premiums are up 14% so far in 2003, and this will probably be the third straight year of double-digit increases. Though the Federal Government has cut taxes, many state and local governments, facing budget crises, have raised them in one form or another for property, tolls, college tuition, cigarettes, automobile registration. With an inflation rate of 1.2%, prices for goods and services have remained essentially flat, but we're still feeling the pinch. Adding to the pressure: wages have risen only marginally.

True relief will come when the unemployment rate starts to fall. That will probably take another quarter or two, as job growth typically lags GDP expansion. So far this has been a jobless recovery. Since the recession started in March 2001, the U.S. economy has shed 2.7 million jobs. The Administration would like to hit a target set by some private-sector forecasters to create 200,000 jobs a month, but it has been wary of making its own forecasts. In recent years spikes in the growth rate have faded. Economists expect this year's fourth quarter to cool to a still healthy 4%. To sustain long-term growth, the economy needs what's known as a virtuous cycle, in which increases in demand for goods and services are such that businesses have to expand capacity, hire more workers and produce more goods, all of which generates additional profits and demand for more workers.

For now, the economy's improvement is based partly on the painful work-force reductions of recent years. Companies have become more productive through downsizing and squeezing higher output from workers. Efficiency is terrific, of course, but it won't necessarily translate into job growth. Diane Swonk, chief economist at Bank One in Chicago, says the unemployment rate needs to fall to around 4.5% before we will "feel" the expansion. For now, says Sung Won Sohn, chief economist at Wells Fargo, "all of us, both business and consumers, are being squeezed." Here are some reasons why for many of us it doesn't feel as if we are living in boom times:

--THE MEDICAL MIGRAINE No matter whether you are running a business, toiling in an office or looking for a job, you are probably feeling the health-care sting. Workers notice it in the form of higher payroll deductions and larger co-pays for prescription drugs. HMOs, which typically used to cover hospital stays in full, are adding deductibles of about $240 a visit.

In aerospace, a cyclical industry that's in a downturn, Boeing's 92,000 nonunionized employees will for the first time face payroll deductions (up to $105 a month) for health insurance. (Deals with Boeing's 58,000 unionized workers are negotiated separately.) Boeing's health costs, says spokesman Ken Mercer, are rising 15% annually and are projected to hit $2.5 billion by 2005. Boeing doesn't expect a turnaround in the airline industry until at least that year, meaning that health-care costs will probably grow faster than revenues.

Companies such as Wal-Mart have introduced variable pricing schemes. Its "associates" can choose lower payroll deductions and opt for deductibles as high as $1,000 a year. Other firms, such as General Electric, have launched variable premiums for family coverage, so that a worker pays depending on the size of his or her family. "There used to be two payment levels--single and family," says Gary Sheffer, a GE spokesman. "Starting in 2004, we will go to single, two people and then three or more. And your premiums will go up as you go up that hierarchy. You pay more if you have higher use, and obviously families will have higher use." Boeing has for several years charged workers an extra $100 a month if their spouses or domestic partners who are employed elsewhere decline coverage from their employers. The drawback to such plans is that they are "administratively difficult--you have to get more involved in aspects of a family life," says Barry Schilmeister, a principal with Mercer Human Resource Consulting.

A typical family health plan now costs $9,068 a year, and companies intend to ask workers to pay more next year, according to the latest survey by the Kaiser Family Foundation. The California supermarkets fear that if they don't shift more costs to employees, they will lose the ability to compete against operations like Wal-Mart, whose overall costs for goods and labor are lower. "In order for us to stay competitive, we need labor contracts that are good for both our employees and our companies," the grocers explained in newspaper ads.

Part of the problem is the growing number of retired workers. As companies or whole industries downsize, their work forces are becoming smaller than the population of retirees they are supporting, a situation that has led to soaring medical costs. General Motors now has one U.S. worker supporting 2.5 retirees, leading to a massive drain on profits. Because of such pressure, company-sponsored medical care for retirees is becoming rarer. In 1993, 43% of firms offered medical coverage to retirees who weren't eligible for Medicare. The figure last year was 34%, according to Mercer Human Resource Consulting.

--WELCOME TO SPARTA Forget the toga parties, concierge services and fruit bowls in the office. For most workers, those perks fluttered away after the Clinton boom years and probably won't return, benefits consultants say. Under the new regime, you may not be allowed to dial directory assistance at work, as some employees at Credit Suisse First Boston have discovered. Fewer companies are letting workers keep the frequent-flyer miles they rack up on business travel. DaimlerChrysler, which routinely paid $100 bonuses to corporate-sales folks who sold a car to a retail customer, has eliminated the extra cash reward; the firm has lost $1.1 billion so far this year and is under pressure from shareholders to get back in the black.

Companies are squeezing wherever they can. Compuware, a computer-services company in Detroit, eliminated its customary holiday gift of a jar of cashews to each of its 9,300 workers; that will save $500,000. The firm, which has cut wages and plans to start taking payroll deductions of $25 to $50 a month for health care, has been chipping away at other benefits too. Compuware is terminating tuition reimbursements (to save $1.4 million), and it intends to charge more for child-care services at its headquarters. "Our revenues have not been growing, so we need to reduce our expenses," says Thomas Costello, senior vice president for human resources. He says the measures have enabled Compuware to avoid large-scale layoffs, which some of its competitors such as EDS have imposed.

--THE BENEFITS GET ODDER Fearing that excessive cuts could drain employee morale--and lead to an exodus when the economy picks up--some companies are looking for ways to send workers the message that they care. The burrito slingers at Chipotle Mexican Grill, for instance, have paid 10% to 15% more annually for their health coverage since 2000. But the Denver-based chain of 280 restaurants, which is 90% owned by McDonald's, isn't tightening the belt everywhere. In July 2002 it introduced a new benefit: pet health insurance. Chipotle says it covers the first $10 a month, enough to pay the premium for a pup's first year of care. Employees also receive a 15% discount on veterinary services. "It fits our philosophy of caring for the employee's whole family," says Bob Wilner, chief administrative officer. Only Chipotle's 800 salaried employees (the remaining 5,300 are paid hourly) are eligible, but those who choose it are appreciative. "For a few bucks a month, it's a great benefit," says Dan Fogarty, 42, director of brand development and owner of a mutt named Pete.

Yet these small gestures have not eased the sense that the corporate safety net will continue to fray. Even as the economy reflates, many unemployed workers may find themselves in temp jobs with no benefits, or they may end up working for small businesses whose benefits are less generous than those at bigger corporations. Small businesses, says Swonk, are the "shock absorbers" of the new economy. The good news is that the U.S. economy has the flexibility to absorb these shocks. The bad news is that the workers usually do much of the absorbing.

--With reporting by Margot Roosevelt/Los Angeles, Eric Roston/Washington, Eli Sanders/Seattle, Joseph R. Szczesny/Detroit and Leslie Whitaker/Chicago

With reporting by Margot Roosevelt/Los Angeles, Eric Roston/Washington, Eli Sanders/Seattle, Joseph R. Szczesny/Detroit and Leslie Whitaker/Chicago