1/18/2011 12:43 PM ET|
Economy will recover; your pay won't
If you were laid off but had the good fortune to find another job, chances are you're earning less now. Painful as that is for you, it could be good for the economy.
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 Wisconsin, Dale Szabo, a former manufacturing manager with two master's degrees, searched for 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.
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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.
More settle for less
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 their wages won't return to pre-recession levels for years, if ever, 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, the 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 re-evaluate some of our starting wages."
The upshot: The resort will keep labor costs flat this year, even as revenue picks up and the resort selectively adds workers.
Overall, U.S. wages continue to grow, but at a slow pace. Wages and salaries for civilian workers were up 1.5% before adjusting for inflation in the 12 months ended in September, according to the Labor Department's comprehensive Employment Cost Index, which compares wages in the same jobs and doesn't reflect wages of people switching careers. Over the same period, consumer prices rose 1.1%.
'Facing reality, rethinking dreams'
Gregg, 45, the California auto worker, says she at least had a chance to prepare for tougher times. She spent two decades working for New United Motor Manufacturing, a Fremont, Calif., joint venture between General Motors (GM, news)and Toyota Motor (TM, news), before the plant closed in April 2010. The factory had warned workers seven months earlier that it was closing. "I was preparing myself beforehand and getting all my bills lowered," she says.
She considered pursuing her dream of starting a small business, perhaps an ice-cream parlor. She contemplated going back to school. But she says that with her income cut from $1,200 a week at the auto plant, where she was a technician, to $450 in unemployment checks, she couldn't afford those things, in part because she was supporting her daughter, who had just entered college.
She recently joined a startup energy technology firm. The pay is $28 an hour, $6 an hour less than in her prior job, but she jumped at it. Though she's already cut back on travel, eating out and shopping, she wonders how she might make up the wage gap over time.
"I do want to make more money," Gregg says. "The only way I'm going to get back to that is if I go back to college and get more of an education."
Problem lingers for decades
Von Wachter, the Columbia economist, has studied three decades of Social Security data in order to track the paychecks of workers from the 1981-82 recession who experienced sudden mass layoffs. Those workers saw their earnings drop 30% on average, compared with similar nondisplaced workers. Even after 15 to 20 years, those workers lagged behind: Their wages were still 20% lower than those of their counterparts who didn't lose their jobs in the original layoffs, according to his research.
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Good for the economy if you are a CEO CFO...
Gas prices steadily rising, notice how it happened while everyone was focused on whether tax cut would be extended?
Our country is regressing. I am not a union employee but I can see where they benefited the country. When this country was prosperous, the country as a whole not the corporations, workers were treated fairly. Wages went up with inflation. There was pride in what was made in USA. People felt secure.
Since Reagan put the tools in place to break the unions, wages plateaued while inflation continued to rise. The graph of inflation next to middle income wages is sickening.
Corporations will never spread their record profits with the worker, the stockholders and CEO's get plenty though.
LOL! It never ceases to amaze me how these economists say lower paychecks will help the economy. REALLY??? Like one commenter already stated, with gas i
that might be in the $4.00 - $5.00 a gallon range, food prices escalating, possible inflation, higher property taxes due to school levies, never ending levies for libraries, sales taxes, fees, and other products.....I ask again, Lower wages are good? WOW!
Also, answer me this.......When was the last time bad weather, drought, or a freeze which increased prices on coffee, peanut butter, oranges, etc. ............ ever go back down????? Are the frost cycles, drought, and inclimate weather permanent now?? What a farce!
It's always good for the lower 80% to take those pay cuts, so the upper 20% can survive!
The top 1% are 400% richer since 1980, and Reagan has pretty much destroyed this country by convincing people that the wealthiest making money hand over fist equals booming economy, Holy Capitalism. Anybody else getting ahead equals Socialism.
If the powers that be really believe that lower wages are a good thing for America then why don't they lead by example, cut their pay and go without bonuses for a year or two. Isn't this what leaders are suppose to do?? (Or is this just another way to line their pockets on the back of the middle class??) Some CEO's make more money in a year than the average American would make in 25 lifetimes. I sure they could afford it for a couple of years and what an example it would set for this country.
The only international commodity we have in excess is labor. So long as the rest of the world relies on the US to support and protect the international economy without tax revenues to support it, the result will be bankruptcy... macro economics.
It seems that only the working public is subject to these income cuts. The utility Co., Cable Co., Interest rates, Health Insurance costs etc. charge whatever they want and no one is stopping them from raising their rates to help the economy. Most of us are just about managing on the income we make. Raises are a thing of the past. Its getting to the point that our income won't be able to cover our expenses.
Now, take that logic to its conclusion: 70% of the economic growth in the US is due to consumer spending. If consumer can't spend, then what would the expected result be?
"Welcome to the Global Economy" is what this article should be titled as one person in the article called it a "employers market". Unions started because it was too much a employers market, employers were treating their employees like paper towels - "use and toss" as in what is going on in most developing countries now. The global economy is a world where unions will not be allowed to develop in other countries as they should so employees could have rights we currently enjoy due to the fact companies now can just pull up root and relocate somewhere else. Has anyone heard of sexual harassment or discrimination cases in India or China? In this environment our wages are just going to keep on declining 'til it reaches a new median with the global wage scale. This was at least 30 years in the making, it can't be undone in 4-8 years and won't be undone - the wealthy like power (control) and will destroy us (the middle class) long before they really share it.
We don't have a new car, so no car payment. We have an apartment, so no mortgage. We have no credit cards, so no debt. I suppose that makes a big difference in why we're not as stressed/depressed/dissatisfied as everyone else.
However, most of the people referred to in this article STILL make more money than either of us. What the hell are you spending your money on people? Sure, we have no mortgage, but we pay rent each month at over $1000.00. If we were single, we could still afford the apartment we have now. We have cell phones on a pay as you go plan, not out of necessity, but out of practicality. We just bought new computers this year, but don't have an ipod or ipad or any of the latest and greatest gadgets. We don't get an expensive (and bad tasting) coffee beverage every morning, nor do we buy into every new possible trend.
I think people in this country need to take a SERIOUS look at their spending habits, their values and what they want out of life. Re-evaluate your priorities. A new car, huge house, designer (ugly) clothes, and keeping up on the latest trends do NOT bring happiness. If people would take this opportunity to examine their lives and their values, this recession can make us a stronger society with better values, ethics and outlooks.
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