Recession Hangover: Are Wage Cuts Here to Stay?

by Vault Careers | January 11, 2011

  • My Vault

Bad news for workers, good news for companies: wages have taken a sharp hit since the onset of the recession, and aren't expected to recover for quite some time.

A report in today's Wall Street Journal finds that a substantial number of workers who have found jobs after being laid off during the recession have taken paycuts exceeding 20 percent for the privilege of joining the labor force once more.

The ramifications of that should be obvious for everyone: companies are enjoying an employer's market right now, meaning they can offer lower wages—especially for entry-level employees—than they'd have been able to in bygone years. And the Journal also cites research that shows that employees who take pay cuts tend not to catch up with the earning levels of their peers over the course of their careers. As Columbia University labor economist Till von Wachter told the paper "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."

As bad as all that sounds, there's a definite silver lining in there for companies—and possibly for the rest of us as well. In the Journal's words:

"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."

Got that? A haircut for you today will help the country in the long run. Nice to know you can feel patriotic about your diminished circumstances, isn't it?

Read More:
WSJ: Downturn's Ugly Trademark: Steep, Lasting Drop in Wages

Phil Stott, Vault.com

Filed Under: Salary & Benefits

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