U.S. wage downturn eclipses that of 1981-82 recession

An older woman, panhandling on a city street.

Some salary is better than no salary at all. (Photo Credit: CC BY-SA/Kyle Lease/Flickr)

When it comes to salary, something is better than nothing. However, for the lucky few who do manage to find jobs during this recession, many are finding that what they earn today pales in comparison with what they made before they were unemployed, reports the Wall Street Journal. The nationwide wage downturn is so severe that many will never approach what they earned before, even after years of employment.

Wage downturn throws sticky wages out the window

Historically, even during some of the highest times of unemployment in U.S. history, wage downturns have been slow. Economists call these “sticky” wages. Current recession wages are far from sticky, though. Reports of educated, highly skilled workers who have been laid off, only to finally get a job that pays a fraction of what they made before – from several dollars less per hour down to something resembling minimum wage – are frighteningly common. The U.S. Department of Labor indicates that 36 percent of newly employed workers are being paid at least 20 percent less than at the jobs they lost.

Earnings losses on such a scale have only been seen twice in recent U.S. history: during the Great Depression and during the 1981-82 recession. The wage downturn the country faces now has already outpaced the latter period.

Unemployment and negative wage pressure

Now that unemployment has been more than 9 percent for the past 20 months – and experts expect it to stay that way through most of 2011 – businesses can afford to pay new employees less, as competition for jobs is high. This negative wage pressure has forced workers to either settle for less and remain there or accept the low offer and return to college to renovate their skill sets.

Desperation: A silver lining for business

While individual workers do not benefit directly from the wage downturn, Columbia University labor economist Till von Wachter argues that in theory, being able to pay lower wages makes companies more competitive by allowing them to hire more workers. Long-term, that would aid the U.S. economic recovery.


Wall Street Journal

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