U.S. wages take sharp fall as recession lingers

By Dow Jones Newswires-Wall Street Journal
Posted Jan. 11 at 8:03 a.m.

Even at times of high unemployment in the past, wages have been very slow to fall, but not in this recession. To an extent rarely seen since the Great Depression, wages for a swath of the U.S. labor force this time have taken a sharp and swift fall.

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 percent less than the one they lost.

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 percent 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.

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.”

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 percent 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 percent.

Former auto worker Maria Gregg was out of work five months last year before landing a new job at a nearly 20 percent pay cut., says at least she had a chance to prepare for tougher times. She spent two decades working for New United Motor Manufacturing Inc., a Fremont, Calif., joint venture between General Motors and Toyota, before the plant closed in April. The factory had warned workers seven months earlier that it was closing. “I was preparing myself beforehand and getting all my bills lowered,” the 45-year-old said.

She considered pursuing her dream of starting a small business, perhaps an ice-cream parlor. She contemplated going back to school to build on her associate’s degrees. 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 it, in part because she was supporting her daughter who had just entered college.

She recently joined a start-up energy technology firm. The pay is $28 an hour, $6 less than in her prior job, but she jumped at it. Though she’s already cut back on travel, eating out and shopping to adjust, 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.”

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 percent on average compared to similar nondisplaced workers.

Even after 15 to 20 years, those workers lagged behind: Their wages were still 20 percent lower than their counterparts who didn’t lose their jobs in the original layoffs, according to his research.

A key part of earnings losses, von Wachter and his fellow researchers found, comes from the fact that workers accumulated skills over a decade or two that may be outdated and not garner the same wages after a downturn. And then instead of gaining new skills for a higher-paying job, they often take what they can get at a lower wage and stop their job hunts.

“Given that the process of recovery can take so long, it’s important to make people who were unemployed realize that if they really want to recover they may need to stay in the game for a long time, and perhaps consider a switch in careers,” von Wachter said.

Dale Szabo, 53, a former manufacturing manager with a MBA and another master’s degree in organizational communications, became a janitor after losing his job as a training manager in a nearly 26-year career at Briggs & Stratton Corp., a Milwaukee-based engine maker.

Szabo says he keeps an Excel spreadsheet tracking his job search. By early 2004, he says he had applied for 750 jobs. A year later, it topped 1,000. Since then, he says he sent out 1,000 more resumes as he grew less picky about the location and position.

In late 2005, with his severance long exhausted, a friend bet him that he couldn’t get one of two openings as a janitor in the Wauwatosa School District, earning $9 an hour. He got the job and has since moved up to a nighttime janitor position, the lone man supervising school buildings in the evenings. In his old job, Szabo says he earned $48,000 plus overtime — as much as $63,000 in total in 2000. His new job pays $34,000 a year.

“It’s very hard work. I never dreamed I would be doing it,” he says. “But I have to pay the bills.”

Szabo still says he wants to go back to work in manufacturing, in the field of training and development, and continues sending out resumes.

“I would love to get back to my field,” he says. “Am I prepared to stay where I am? Yes, if that’s where God has me. I’m making my $17 an hour and I’m encouraging all my friends who are making zero to keep looking. They may end up with something like what I’ve got. Seventeen is much better than zero.”

Research shows that children of workers who lose jobs and go back to work at lower wages appear to suffer from lower wages, too. In a 2008 study, a group of economists tracked the wages of 60,000 father-child pairs from 1978 to 1999. Children whose fathers went through mass layoffs in the 1982 recession ended up with 9 percent lower earnings than similar children whose fathers didn’t experience the job cuts.

The impact was concentrated in children from lower-income families. “When someone at the bottom of the income distribution loses their job, the loss of income is much more likely to involve losing things that matter for the family to sustain itself,” says Marianne Page of the University of California, Davis, one of the researchers.

Part of the wage adjustment after a downturn rests on how much workers are willing to give up.

After seven years working in regional sales in Southern California for Diebold Inc., a manufacturer of ATMs and security systems, Virginia May says she was earning $30 an hour plus bonuses when she and 800 colleagues lost their jobs in early 2008.

She took a seven-month stint with the Census Bureau last year, earning $25 an hour, but struggled to find the same wage anywhere else. May says she turned down 10 job offers out of 58 interviews. One of them was as an office manager, similar to the job she had at Diebold, paying $10 an hour.

“When it comes down to it, they want to offer us peanuts to work,” she said last fall.

May, 63 years old and never unemployed before the latest downturn, runs a group for unemployed professionals in the Los Angeles area. “The first thing we teach all of our members is: ‘Don’t accept the first offer, always go into negotiation with them,’” she says. “Some of the people are afraid to, because the market is so tough out there.”

– By Sudeep Reddy

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  1. Jeeper Jan. 11 at 10:34 a.m.

    Wage increases for those with jobs have been pretty much flat for 3 years. The last raise I got was 1% in 2009. It was 0 last year. In 2011, we were told by the company’s HR department they have frozen wages indefinitely.

    Raise more taxes, Springfield!!!!!!!!!

  2. Bob of Omaha Jan. 11 at 11:31 a.m.

    In 1998, I resigned from a company as the ex did not want to relocate to the South (I love the South). Two years later I found a good job paying 38K less even with a post graduate degree. Ten years later I am now making 1998 dollars again. Moral of the story? Do not let women control your decisions

  3. joe Jan. 11 at 12:02 pm

    The sad thing is, if you get laid off your job, you’re better off staying unemployed for the maximum amount of time. The sad thing too, is you’ll probably make more money doing so.

  4. Steve999 Jan. 11 at 1:08 pm

    I dont have much sympathy for the person in the article. She made $34 and hour (or just short of $71k/yr) with an associates degree? WOW!!! Not to belittle her job, but that is a lot of $ for an auto worker in my opinion. No wonder we cant make anything in the US anymore. I am all for a good wage, but $71k…come on.

  5. joe1 Jan. 11 at 1:23 pm

    and in the mean time. CEO bonuses, stock option payouts all UP UP UP and going UP!!

  6. Harvey Wallbanger Jan. 11 at 1:54 pm

    “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.”

    Really? How does the nation become “more prosperous” when the individuals become “less prosperous”?

  7. Jean SmilingCoyote Jan. 11 at 2:07 pm

    The idea that lower wages for individual workers may make the nation more prosperous smacks of what I call the “Fallacy of Distribution.” How can a nation be considered more prosperous if the evidence does not include individuals? Is prosperity for a nation only in its government coffers and public property? What good is that? I can’t pay my bills with the nation’s prosperity. The government certainly isn’t paying them. Or consider North Korea: the government is rich, while most of the common people are starving.
    I’d also like to point out that for many, we still haven’t been allowed to start working up to our full potential with our college educations. There are many kinds of job discrimination going on, recession or not. I think it’s also bad for the country when people’s full abilities are being squandered in unemployment and underemployment.

  8. ethan Jan. 11 at 4:17 pm


    Do you ever consider what happens when the stock price goes down, down, down? Your 401K loses value and the rest of the staff employed at the company that you are riding ******* are now in the bread lines too.

    Your comment implies “evil” business owners/CEO’s, when in fact you want, you need, that business to succeed. If you don’t like what CEO’s are getting paid, get yourself assigned to the Board of Directors that oversee the company! In the meantime, stop whining and start working.

    If you still feel like complaining, start looking at what your government officials are getting paid for. In Illinois, the elected having been doing nothing except getting themselves re-elected and screwing over Illinois in the process. At least a business has to MAKE/DO something. Government officials (especially in IL) only know how to SPEND (without accountability I might add).

    Go after public officials. they’re SUPPOSED to be working for you afterall, aren’t they?

  9. joe1 Jan. 11 at 6:35 pm

    Ethan,i am involved with the market. My ears are a lot closer than you can comprehend. I know what im talking about. When the stock goes down options have been long cashed in. Do your homework and research and see whats happening now.CEOs and BODs know how to game the market. The stock market is being magically propped up with your tax dollars and no true intrinsic growth. In the mean time record inside sales are being booked. The ratio is insane!! In the mean time , unemployment is still upper 9s and REAL unemployment closer to the upper teens. !! Actually i dont complain.I just make lots of money on the basis of their greed and entitlement nature.
    I dont waste my time with gov, and the concept of democracy cause your bod buddies and ceos just pay them off to get the laws they want.(see frank-dodd. yes the watered down version) Your last sentence you only show how naive you are. I do suggest next time you comment read some hard core financial blogs and not the junk that the MSM want you to believe.
    Yes. Corporate Amercia will and has destroyed this country.The stock option compensation model is just too ripe for lies,deception,etc (see banking industry)
    As the character Gordon Gecko said in Wall street over 20 years ago. “America will destroy itself from within” I hope you understand what that meant.Best of luck!!

  10. Lucius Verenus Jan. 12 at 8:12 a.m.

    I wish I could make a comment, but I have been banned from the commentary.