updated 1/28/2011 9:41:35 AM ET 2011-01-28T14:41:35

Workers saw their wages and benefits rise slightly faster in 2010 than 2009, but the gain was still the second-lowest increase in nearly three decades.

Wages and benefits increased 2 percent last year after a 1.4 percent increase in 2009, the Labor Department reported Friday. Both years were the smallest gains on Labor Department records that go back 28 years.

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The modest gains reflect a severe recession which pushed millions out of work and depressed the bargaining power of those with jobs. While weak wage gains mean low inflationary pressures, it also leaves households with less income to boost consumer spending.

Analysts believe labor costs will be constrained as long as unemployment remains elevated. The unemployment rate in December stood at 9.4 percent. Many economists believe it will still be around 9 percent a year from now.

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The Labor Department's Employment Cost Index measures wages, salaries and benefits — which include health insurance and pensions.

Wages and salaries rose 1.6 percent in 2010. That's a slight improvement from 2009's 1.5 percent — the lowest annual gain on record.

Benefit costs were up a faster 2.9 percent in 2010, nearly double from 2009.

Labor Department analysts attributed the 2010 benefit acceleration to higher costs for retirement benefits.

For the fourth quarter, employment costs rose 0.4 percent, matching the increase in the third quarter and slightly lower than economists had expected.

The country lost 8.4 million jobs from December 2007 through December 2009. In 2010, there was a net gain of 1.1 million jobs but that still has left millions of people looking for work.

While low wage pressures mean inflation is subdued, the concern is that unless households start seeing better wage gains, consumer spending will not strengthen enough to give the overall economy a boost.

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