Shrinking Paychecks: the Other Side of the Unemployment Issu

by SixFigureStart | November 17, 2009

  • My Vault
Long after the last dissenting economist has finally agreed that the recession is over, the average employee is likely to still be feeling two of its lasting legacies: namely that it's still going to be tougher than at any time in recent memory to find work, and what work there is likely won't pay as well as it did a couple of years ago. Of course, we've been dealing with the first of these realities for well over a year now and, frankly, with unemployment sitting in the double digits, the predicted "new normal" of seven or eight percent doesn't look quite so bad right now. Salaries, however, are another story, and they're likely to remain a problem for as long as employers have the luxury of picking from a candidate pool overflowing with people who are simply grateful just to have a job.

The Wall Street Journal highlighted the extent of the pay problem recently, noting that wage and benefit increases for the year ended September 2009 came in at just 1.2% nationally—"the smallest change since the U.S. began measuring in 1975." Worse, "[s]ome economists expect the figure to continue downward in coming months and to turn negative for the first time since such records have been kept."

While that eventuality may not be surprising—the Journal also reports that people returning to work are taking pay cuts averaging 40 percent—it's still unnerving. For the foreseeable future, it's going to continue to be insanely difficult for someone who loses a job to find a new one, and they're going to have no guarantee of a similar salary when they do so. Makes you wonder about the rest of those borderline mortgages and credit card balances, eh?

It’s not only people who are returning to the employment fold that are likely to see the effects of wage reduction going forward. A recent Vault poll found that some 60 percent of respondents have experienced pay cuts at some point since the onset of the recession. Of those, only 3 percent have since had the cuts restored, with a whopping 41 percent reporting that there are no signs of a restoration on the horizon. Compare that to the mere 16 percent of respondents who report that they're now earning more than when the recession started, and the problem stands in even sharper focus.

No matter how much people have managed to cut back already, a continued fall in incomes can only lead to one thing: further economic shrinkage that compounds the spiral. Unfortunately, what the economy really needs right now is the exact opposite of what companies are doing: lots of people being hired on salaries that allow for plenty of discretionary spending. Until that happens, economists and experts can argue over figures all they want, but for those at the job seeking coalface it's going to continue feeling like a recession for a good while longer.

--Posted by Phil Stott, Vault.com

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