Wage cuts steepest since the Depression?

posted at 12:15 pm on January 11, 2011 by Ed Morrissey

The continued high rate of unemployment has made labor a buyer’s market, and the effect on price has been predictable — and substantial.  The Wall Street Journal reports that wages have fallen farther than at any time since the 1981-82 recession, and that this downturn has already exceeded that crisis.  As the unemployed scale back expectations on both jobs and income levels, compensation has retreated farther than any time since the Great Depression:

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.

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 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.

In one sense, this is just the normal response to supply and demand.  Labor is a commodity in that sense, and the cost of labor increases when supply is short, and decreases when supply is glutted.  As a hiring manager for several years in the Twin Cities, we had to repeatedly increases wages across the board (not just for new hires) to keep staff on board and to entice qualified applicants to work for us when unemployment in the area was in the 3% range.  Right now it’s more like 7% in this region, and I’m certain that had I remained in that career, I would be finding it much easier to keep the call center staffed without having to raise compensation levels at all.

It may not be quite as bad as it sounds, either.  While compensation falls as the jobless have to settle into new, less-lucrative jobs, prices are also falling in other areas, especially in real estate.  Retail prices have stabilized, but retailers are still relying on heavy discounting to move inventory.  Buying power may not be declining as much as wages, although it’s certainly not increasing.

The reason that the problem is worse than at any time since the Depression, assuming that the WSJ is correct in that analysis, is that we have had the worst extended unemployment since that time.  The best way to resolve this problem is, not coincidentally, the best way to resolve the housing crisis and other economic woes: stimulate job-creating growth.  Unfortunately, as the Obama administration pursues its regulatory expansion, it will disincentivize that kind of domestic investment, which will perpetuate this problem for at least another two years.

Update: As the first commenter rightly notes, food and energy prices have risen (they’re linked, too), so that does accelerate the erosion of buying power.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Buying power may not be declining as much as wages, although it’s certainly not increasing.

I see you haven’t been to the grocery store or filled your car with gas, Ed. You need to get out more.

Knucklehead on January 11, 2011 at 12:19 PM

I blame the new GOP Congress.

/

mankai on January 11, 2011 at 12:20 PM

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.

I just took a job for 80% of what I was making.

Thanks democrats! You own this.

Inanemergencydial on January 11, 2011 at 12:22 PM

I thought photos of money printing were UA? When we visited the bureau of printing/engraving, pics were illegal.

ted c on January 11, 2011 at 12:22 PM

As a hiring manager for several years in the Twin Cities… I would be finding it much easier to keep the call center staffed…

Hyderabad and Secunderabad?

John Deaux on January 11, 2011 at 12:22 PM

It may not be quite as bad as it sounds, either. While compensation falls as the jobless have to settle into new, less-lucrative jobs, prices are also falling in other areas, especially in real estate.

Unfortunately, the fall in real estate prices has not been duplicated in the grocery store or at the pump. In fact, if my experience is any guide, even resetting your mortgage payment to reflect the new values won’t make up for the rise in food and gasoline.

Vashta.Nerada on January 11, 2011 at 12:23 PM

” Free Government Cheese for everyone!”

Obama’s next campaign slogan?

ornery_independent on January 11, 2011 at 12:23 PM

Thinking about the thread showing that 43% of Americans have swallowed the absolute lie that the AZ shooter was somehow motivated by the “heated rhetoric” of the Tea Party (etc.) based on NOTHING…

I believe that horrific fact will further embolden the press to try and connect things which have no connection… including connecting any bad ecomonic news with the GOP congress. Watch for it this summer.

mankai on January 11, 2011 at 12:24 PM

…except for the greedy fatcat unions of course. Instead of lowering wages their employers have to lay them off.

slickwillie2001 on January 11, 2011 at 12:25 PM

Mankai @ 12:24…..guaranteed my friend….

Blame the gop

cmsinaz on January 11, 2011 at 12:26 PM

“Look Daddy, the wage line is shorter than the soup line!”

–one of the top ten things I pray my children never utter…

ted c on January 11, 2011 at 12:28 PM

No problem, professional gropers at the TSA are still being hired in droves. Bonus: If you miss a handgun here or there you get to keep your job.

Bishop on January 11, 2011 at 12:30 PM

I’d take a minimum wage job at this point but I’m overqualified.

darwin-t on January 11, 2011 at 12:30 PM

My husband was unemployed for a year and a half here in Northern Ca. We owned our own Construction business. The job he got pays in a week what he made in a day or two. We’ve scaled down alright. Right out of our foreclosed home. After saying all that we are grateful to have that job!

sandee on January 11, 2011 at 12:31 PM

But what about Obama’s laser like focus on job creation? What about Recovery Summer? What about liberal utopia???

search4truth on January 11, 2011 at 12:36 PM

Welcome to the Great Depression 2.

Note 1: Back during the 1930s, depression was used the same way repression is now, so “The Great Recession” has the same semantics “The Great Depression” did then.

Note 2: While we now have a formal definition for “recession”, we don’t have a formal definition for “depression”. I would contend that the situation we’re currently in, where the recession has ended but the recovery is too anemic to keep pace with the growth of the workforce, fits. Even (or especially) when the level of discouragement depresses the workforce participation rate.

LarryD on January 11, 2011 at 12:42 PM

Slightly OT, it’s nice to see snorgtees has hired a new girl. I think she’s hawt.

loudmouth883 on January 11, 2011 at 12:44 PM

Welcome to Obama’s America. Ain’t exactly Willy Wonka’s chocolate factory….is it?

capejasmine on January 11, 2011 at 12:46 PM

Wage cuts steepest since the Depression?

I told you I was bringing change! –Barack Obama

18-1 on January 11, 2011 at 12:57 PM

Before you all get too riled up over this, remember the single greatest cost for most people is housing. Housing costs are down 20-30% from 5 years ago. And yes gas and food prices are higher but as a % of income, housing is much higher.

So overall the average person is no worse off today with a lower income than they were 5 years ago.

angryed on January 11, 2011 at 1:06 PM

As the first commenter rightly notes, food and energy prices have risen (they’re linked, too), so that does accelerate the erosion of buying power.

Hey!

Let’s make ethanol more prevalent (driving up food prices) and fossil fuels more scarce (driving up the cost of everything)!

WE MUST SAVE THE EARTH.

Good Lt on January 11, 2011 at 1:06 PM

Note 1: Back during the 1930s, depression was used the same way repression is now, so “The Great Recession” has the same semantics “The Great Depression” did then.

Note 2: While we now have a formal definition for “recession”, we don’t have a formal definition for “depression”.

LarryD on January 11, 2011 at 12:42 PM

The word depression used to mean what we now call a recession. There were several depressions prior to the 1930s. They just called the 30s The “Great” depression to differentiate it from previous ones.

After the 1930s depression, they stopped using the term altogether and came up with the word recession. But technically, there is no difference between a recession and a depression. They are both defined as periods of economic contraction. Some last a few months, some last a decade.

angryed on January 11, 2011 at 1:08 PM

We can’t drive our SUVs and eat as much as we want and keep our homes on 72 degrees at all times … and then just expect that other countries are going to say OK. That’s not leadership. That’s not going to happen.

~Barack Hussein 0bama

Rebar on January 11, 2011 at 1:11 PM

Before you all get too riled up over this, remember the single greatest cost for most people is housing. Housing costs are down 20-30% from 5 years ago. And yes gas and food prices are higher but as a % of income, housing is much higher.

So overall the average person is no worse off today with a lower income than they were 5 years ago.

angryed on January 11, 2011 at 1:06 PM

Home prices may be down but the mortgage that one had 5 years ago hasn’t decreased, so I find your premise questionable.

darwin-t on January 11, 2011 at 1:11 PM

For the first time in my life I haven’t had a pay increase in four years, I work 2 jobs to make ends meet, and the governor is proposing a pay in cut and benefits which somehow will result in us paying more taxes.

scalleywag on January 11, 2011 at 1:16 PM

darwin-t on January 11, 2011 at 1:11 PM

Questionable? You’re nice. It is bull**. Taxes are up and if you’re trying to stay in a home purchased before last summer forget it. This premise is only true if you’re renting, maybe, been foreclosed on, maybe or just purchased a home (not many people).

ORconservative on January 11, 2011 at 1:19 PM

Before you all get too riled up over this, remember the single greatest cost for most people is housing. Housing costs are down 20-30% from 5 years ago. And yes gas and food prices are higher but as a % of income, housing is much higher.

So overall the average person is no worse off today with a lower income than they were 5 years ago.

angryed on January 11, 2011 at 1:06 PM

The fall in housing prices affects only those that transact in the market; recently, very few people have. If you stay in your current home, the fall in prices has no effect on your spending, unless you refinance.

Even if you do transact, your mortgage spending may not offset your other discretionaries. I sold my house, and bought another with a smaller mortgage. My mortgage payment decrease is less than the $400 per month increase in food and gasoline.

Vashta.Nerada on January 11, 2011 at 1:22 PM

Questionable? You’re nice. It is bull**. Taxes are up and if you’re trying to stay in a home purchased before last summer forget it. This premise is only true if you’re renting, maybe, been foreclosed on, maybe or just purchased a home (not many people).

ORconservative on January 11, 2011 at 1:19 PM

I know but I’m cutting back on my angry rhetoric and vitriolic responses to anonymous blog commenters regardless of how foolish I find them. ;)

darwin-t on January 11, 2011 at 1:23 PM

But what about Obama’s laser like focus on job creation? What about Recovery Summer? What about liberal utopia???

search4truth on January 11, 2011 at 12:36 PM

What about “fun”employment?

Fallon on January 11, 2011 at 1:24 PM

darwin-t on January 11, 2011 at 1:23 PM

I laughed. If I weren’t still a little cranky about the Ducks I may have been able to live up to your standards.

ORconservative on January 11, 2011 at 1:28 PM

Mortgages payments are not down.
Property taxes are not down, in fact they are increased.
State income taxes are increasing.
State sales taxes are increasing.
State “fees” are increasing.
Commodity prices — cotton, oil, wheat, rice, soybeans, coffee — all are increasing (because currencies are depreciating).
Physical gold and silver prices are up indicating that internationally people are hedging their bets against fiat currencies.
Wages are stagnant to falling.

Where are jobs in the USA to come from? What can we make, what services can we provide, that will bring unemployment back down to 5%?

Ruthlessly pruning back regulations and laying off government workers; increasing the social security and medicare eligibility ages, and ruthlessly converting public employee pensions into defined annuities are the only solutions. Do this, and we can recover. Do not do this, and eventually we will see WW3.

SunSword on January 11, 2011 at 1:30 PM

I laughed. If I weren’t still a little cranky about the Ducks I may have been able to live up to your standards.

ORconservative on January 11, 2011 at 1:28 PM

I wonder how many people called in with ‘bird-flu’ this a.m..

darwin-t on January 11, 2011 at 1:32 PM

If you’d like to put numbers on it, if last year’s tax receipt data is any indication, the median level of household income fell to about $47,211 from $49,777 in 2009.

ironman on January 11, 2011 at 1:33 PM

Likely WaPo headline on this story – Best Economy Since the Great Depression

(of course, by “best”, they really mean “worst”)

steveegg on January 11, 2011 at 1:33 PM

The fall in housing prices affects only those that transact in the market; recently, very few people have. If you stay in your current home, the fall in prices has no effect on your spending, unless you refinance.

Even if you do transact, your mortgage spending may not offset your other discretionaries. I sold my house, and bought another with a smaller mortgage. My mortgage payment decrease is less than the $400 per month increase in food and gasoline.

Vashta.Nerada on January 11, 2011 at 1:22 PM

I’m talking in the aggregate, not you or anyone person specifically. Housing is cheaper in the aggregate. Much cheaper.

$400 increase in gas and food a month? Where do you drive? What do you eat? I spend maybe $100 for gas a month and I doubt I spend $400 in total for food.

angryed on January 11, 2011 at 1:38 PM

Home prices may be down but the mortgage that one had 5 years ago hasn’t decreased, so I find your premise questionable.

darwin-t on January 11, 2011 at 1:11 PM

Again, in the aggregate housing costs less today than it did 5 years ago. If one were foolish enough to buy a house 5 years ago at the peak of the housing bubble, well, tough luck.

angryed on January 11, 2011 at 1:39 PM

darwin-t on January 11, 2011 at 1:32 PM

More than a few. Eugene is probably shut down.

ORconservative on January 11, 2011 at 2:00 PM

LarryD on January 11, 2011 at 12:42 PM

AngryRed is correct and this IS a depression. As others have pointed out, food, gas AND HOME HEATING OIL are far more expensive than ever. As another poster wrote all our taxes and fees are also increasing to back breaking levels.

The middle class is close to being utterly destroyed by the socialists.

dogsoldier on January 11, 2011 at 2:05 PM

Update: As the first commenter rightly notes, food and energy prices have risen (they’re linked, too), so that does accelerate the erosion of buying power.

Grocery shopping is a bummer. Higher prices for smaller packages! Half gallon of juice is 59 ounces. LOL. Talk about inflation! Some staples going up 10% and more. Fewer coupons to save money. More food stamps which also drives up prices (supply and demand). Gas soon to be at $4.00. It’s not good.

Paul-Cincy on January 11, 2011 at 2:16 PM

…except for the greedy fatcat unions of course. Instead of lowering wages their employers have to lay them off.

slickwillie2001 on January 11, 2011 at 12:25 PM

Unles they are in Kahlifornya. I saw a report on Fox over lunch that Gov Moonbeam is proposing draconian cuts in puplic services, especially for the poor.

He is not, however, touching the union pension programs. I mean, you have to draw the line somewhere, right?

iurockhead on January 11, 2011 at 3:03 PM

The middle class is close to being utterly destroyed by the socialists.

dogsoldier on January 11, 2011 at 2:05 PM

It’s not a bug, it’s a feature.

“……Any revolutionary change must be preceded by a change among the mass of our people. They must feel so frustrated, so defeated, so lost, so futureless in the prevailing system that they are willing to let go of the past and chance the future. This acceptance is the reformation essential to any revolution.”

-Saul Alinsky, in the prologue to “Rules for Radicals.”

It’s called “prepping the battlefield. Cloward Piven, and all that (inspired by Alinsky).

iurockhead on January 11, 2011 at 3:08 PM

So, explain again how sheeps’ bladders may be used to rescue Social Security?

unclesmrgol on January 11, 2011 at 3:19 PM

Housing costs are down 20-30% from 5 years ago. And yes gas and food prices are higher but as a % of income, housing is much higher.

So overall the average person is no worse off today with a lower income than they were 5 years ago.

angryed on January 11, 2011 at 1:06 PM

Your scenario does not describe people like me who own my home outright-no mortgage.
It is separate from our ranching business.
I may not pay high property taxes like many of you, but the rise in food & energy costs, especially energy, affects me directly.
Now if I had to time to feed our cows with a team of horses, I could save a lot on fuel, to be sure.
But since my husband in driving commercial truck as a side business & I have a teaching job, there’s no time for that.
Plus bcs I live in rural ND, food prices are higher than for many of you.
For instance, a gallon of milk at the local grocery store in rural SW ND is $5.75 a gallon.
In Bismarck it is $3.25/gal at Sam’s Club.
High fuel costs have cut into the already thin profit margin in our ranching operation(we couldn’t afford to make hay this year, so we’re scrounging to buy it all) & they’re also cutting into the profit of the commercial trucking side.

Badger40 on January 11, 2011 at 3:30 PM

He is not, however, touching the union pension programs. I mean, you have to draw the line somewhere, right?

iurockhead on January 11, 2011 at 3:03 PM

Here in ND the teacher’s union is all bent out of shape bcs the state is considering tinkering with the pension fund.
I still don’t get why as a public employee I get special treatment in that my pension is garaunteed by the state even if the performance of the stock market devalues my pension.
How is this fair?

Badger40 on January 11, 2011 at 3:33 PM

angryed on January 11, 2011 at 1:06 PM

I owuld also like to point out that the rise in other costs has made it nigh impossible for me to keep up on the upkeep of my home.
A lot of rural citizens are having this problem who own a modest, older home worth little.

Badger40 on January 11, 2011 at 4:06 PM

The continued high rate of unemployment has made labor a buyer’s market

So lets let in 20 million illegal workers and really drive the price down.

GarandFan on January 11, 2011 at 6:50 PM