Amid the gloomy talk of subprime mortgage failures, tumbling profits on Wall Street and a cooling real estate market, one powerful force squeezing New York City’s budget has gone largely undiscussed: the sharply rising cost of municipal labor.

As Mayor Michael R. Bloomberg has moved to settle contracts extending past the end of his term in 2009, he has agreed to more generous pay raises for union after union, leading to expenses that stand to outpace revenue, especially toward the end of the city’s four-year spending plan.

In July, the city settled a retroactive contract with the police sergeants’ union that increased their pay by 27.5 percent over six years, bringing the maximum base salary to $94,962 at the end of the contract in 2011, up from $76,403. A week later, Mr. Bloomberg struck a deal to raise wages of sanitation workers 17 percent over four and a half years, bringing the maximum salary to $67,141 from $57,392. Last month, Mr. Bloomberg announced a similar increase over four years for the police detectives that would bring the maximum base pay for a first-grade detective to $109,002 from $93,176.

Those agreements, along with those made with the police captains’ and fire officers’ unions, will cost the city roughly $300 million in the last two years of the contracts and have helped establish a pattern for wage increases of 4 percent each year for city employees, with an additional 1.59 percent over two years for the uniformed services.

City officials have recently factored the higher salary projections into their spending plan for all employees, regardless of whether they have settled contracts.

That revised plan, submitted last week to the Financial Control Board, which oversees the city’s finances, anticipates that labor costs, rather than declining revenue, will become the driving force in widening deficits over the next four years.

According to the revised plan, a decline in tax collections will account for 60 percent of the expected $396 million contributing to a shortage this fiscal year, and new labor agreements will account for 23 percent. By 2011, however, the final year of the plan, tax revenue is expected to be responsible for 34 percent of the $2.5 billion swelling the deficit and labor responsible for 65 percent.

Earlier this week, Mr. Bloomberg instituted a citywide hiring freeze and directed agencies to devise spending cuts, the first time he has resorted to such actions since 2002, when the city was struggling with the economic effects of a recession and the 9/11 attack.

Several budget analysts praised Mr. Bloomberg’s move to trim costs as prudent, but warned that unions could come to expect at least a 4 percent raise each year, even as the budget squeeze tightens.

The mayor, said Doug Turetsky, a spokesman for the city’s Independent Budget Office, “deserves credit for anticipating that we’re going to need money further down the road.” But, he said, “That would appear to set the floor for negotiations in terms of how much is available at a higher place than it has been in the recent past.”

Since guiding the city out of the fiscal problems he faced upon taking office in 2002, Mr. Bloomberg has enjoyed flush times, and has been able to increase spending on popular items like additional library hours and tax cuts, while banking surpluses for the future.

But now, even as he seeks to burnish his image and may even test his popularity nationally, he may confront starker choices than any he has grappled with since those early days. It may be increasingly difficult to maintain the city’s work force, which provides the services and amenities Mr. Bloomberg says are so crucial.

If the economy gets much worse, said E. J. McMahon, a senior fellow at the Manhattan Institute, a conservative research organization, “and they’re really in the hole, the only way to really save money is to reduce head count, unless the unions begin to make the kinds of concessions that they’ve never actually made.”

Since Mr. Bloomberg took office in 2002, city spending on wages and salaries, including pension and health care benefits, has grown to $32 billion from $27 billion, adjusted for inflation, with an average annual growth rate of 4 percent. Under his predecessor, Rudolph W. Giuliani, those costs increased to $26 billion from $23 billion, about a 2 percent annual increase.

Those costs are now expected to rise to almost $40 billion by 2011, nearly equivalent to the entire city budget in 2001.

City officials argue that they have flexibility in how they settle contracts; they can extract concessions like longer workdays or fewer holidays in exchange for higher wages, they say, or perhaps even put off longer-term agreements if they do not have the money to pay for them.

Some fiscal analysts say the city has locked itself into costly work agreements, in part by following a decades-old practice called pattern bargaining. Under that approach, if one union extracts an agreement for a salary increase, the city often extends the same increase to other unions when their contracts come up for negotiation.

The Bloomberg administration has vigorously defended the practice in arbitration, as it resists a push to give pay increases that are higher than those for other city workers to the Patrolmen’s Benevolent Association, the largest police union, representing 23,000 officers.

“It’s pretty expensive given the economic outlook,” said Charles Brecher, research director at the Citizens Budget Commission, a business-backed policy group. Administration officials “have hoisted themselves on their own petard in that they’ve fought the P.B.A. by saying that there should be a strict pattern,” he said.

But city officials say they can manage the city’s finances better by settling contracts before they expire and for longer terms, as well as by factoring into the spending plan the established pattern across all unions, including those that have not agreed to terms, like District Council 37, with 99,000 members.

“In tough times we’ve been able to work with the unions to find collaborative methods for cost savings, but the reality is once you set the parameters, different unions are going to get similar amounts regardless,” said Edward Skyler, the deputy mayor who oversees both the budget and labor negotiations. “You have to deal with these expenses whether you put them in the financial plan now or later. Not including them at this point would be burying your head in the sand.”

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