To an extent rarely seen in recessions since the Great Depression, wages for a swath of the 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. There are 14.5 million people on the unemployment rolls, including 6.4 million who have been jobless for more than six months.
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 California, former auto worker Maria Gregg was out of work five months last year before landing a new job—at a nearly 20% pay cut. Ms. Gregg, 45, says at least she had a chance to prepare for tougher times. The factory had warned workers seven months earlier that it was closing. "I was preparing myself beforehand and getting all my bills lowered," she says.
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 and with her income cut from $1,200 a week at the auto plant, she wonders how she might make up the wage gap over time.
Source: The Wall Street Journal, January 11, 2011
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