Downturn's Ugly Trademark: Steep, Lasting Drop in Wages
Reality of Main Street Not CNBC
or Political Speak
By Sudeep Reddy
Read more from Sudeep
1/11/2011
In California, former auto worker Maria Gregg was out of work five months last year before landing a new job—at a nearly 20% pay cut.
In Massachusetts, Kevin Cronan, who lost his $150,000-a-year job as a money manager in early 2009, is now frothing cappuccinos at a Starbucks for $8.85 an hour.
In Wisconsin, Dale Szabo, a former manufacturing manager with two master's degrees, has been searching years for a job comparable to the one he lost in 2003. He's now a school janitor.
They are among the lucky. There are 14.5 million people on the unemployment rolls, including 6.4 million who have been jobless for more than six months.
But the decline in their fortunes points to a signature outcome of the long downturn in the labor market. Even at times of high unemployment in the past, wages have been very slow to fall; economists describe them as "sticky." To an extent rarely seen in recessions since the Great Depression, wages for a swath of the labor force this time have taken a sharp and swift fall.
The only other downturn since the Depression to see similarly large wage cuts was the 1981-82 recession. But the latest downturn is already eclipsing that one. Unemployment has stood above 9% for 20 straight months—longer than the early 1980s stretch—and is likely to remain above that level for most of 2011, putting downward pressure on wages.
Many laid-off workers who have found new jobs are taking pay cuts or settling for part-time work when they get new ones, sometimes taking jobs far below their skill levels.
Economists had wondered how far this dynamic would go in this recession, and now the numbers are starting to show it: Between 2007 and 2009, more than half the full-time workers who lost jobs that they had held for at least three years and then found new full-time work by early last year reported wage declines, according to the Labor Department. Thirty-six percent reported the new job paid at least 20% less than the one they lost.
The severity of the latest downturn makes it likely that many of the unemployed who get rehired will take wage cuts, and that it will be years, if ever, before many of their wages return to pre-recession levels, says Columbia University labor economist Till von Wachter. "The deeper the recession, the lower the wage you're going to get in the next job and the lower the quality of your next job," he says.
While difficult for individual workers, lower wages can make U.S. industries and companies overall more competitive and allow employers to hire more workers than they would otherwise. In the long run, that may make the nation more prosperous.
South Seas Island Resort, which employs about 300 in Captiva, Fla., cut jobs during the downturn, but has now begun adding staff.
"Right now I view this as an employer's market," says Rick Hayduk, managing director, who says the resort is attracting senior people at lower salaries than before. "The past 24 months have taken a toll on a lot of individuals," he says. "I think they abandoned their hopes to receive compensation similar to what they did when they lost their jobs. We have been able to reevaluate some of our starting wages." Complete Article
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