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

Read this article and ask yourself how this corresponds to the Obama/Duncan call for everybody to go to college. There is real rage in Reader Comments to this article. Here are a few.

Reader Comment: "Lower wages" will make the "nation" more properous? Yes, if American "workers" will simply accept a hourly wage lower than their Chinese counterparts --American business elite (whose salaries will continue to climb irregardless of the economy) might grace the "nation" with some more jobs! Who do these people think are going to buy the products that are being produced?

Reader Comment: If you had a PhD in Physics and were flipping burgers, how would you feel? Inspired to calculate the spin-flip state of hamburger meat, or simply near clinically depressed? And by the way, so much for education being the way out...

Reader Comment: In its fledgling years, when Reagan was President, the Forbes 400 list had 13 billionaires. But now the networth of those at the top of the list has grown by several orders of magnitude so that billionaires now possess the entire Forbes 400 list. That's a lot of zeroes (in a Billion, or 400, Billionaires). Wonder if any of that Forbes 400 wealth trickles down to school janitors (as Reagan trickle-down theory states), or if the exponential explosion of wealthiest 2% at the top was attained, at least in part, by systematically siphoning off the fortunes of the bottom 98%, by offshoring jobs, by hiring "temporary workers" with no benefits, by eliminating worker pension programs, by offloading the cost of worker healthcare to the states (a la Walmart), by circumventing safety regulations (as with BP and Halliburton and the Deepwater Gulf oil spill), by petitioning for H1-B workers who are motivated to work longer hours for less money, by bestowing upon retired CEOs golden parachutes and perks like free medical and dental care (like Don Blankenship of Massey Energy and the Big Branch Mine disaster that killed 31 miners) . Either way, it seems wages & job opportunities of the bottom 98% are decreasing, and it ain't for nothing that the next generation of Americans will do worse than their parents.

By Sudeep Reddy

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.

In Massachusetts, Kevin Cronan, who lost his $150,000-a-year job as a money manager in early 2009, is now frothing cappuccinos at a Starbucks for $8.85 an hour.

In Wisconsin, Dale Szabo, a former manufacturing manager with two master's degrees, has been searching years for a job comparable to the one he lost in 2003. He's now a school janitor.

They are among the lucky. There are 14.5 million people on the unemployment rolls, including 6.4 million who have been jobless for more than six months.

But the decline in their fortunes points to a signature outcome of the long downturn in the labor market. Even at times of high unemployment in the past, wages have been very slow to fall; economists describe them as "sticky." 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.

Dale Szabo, who has two master's degrees, lost a job as a manufacturing manager in 2003. In late 2005 he took a job as a school janitor: 'I never dreamed I would be doing it. But I have to pay the bills.'

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.

More than eight million Americans lost their jobs during the recent recession. Many are returning to the workforce--but in jobs that pay them far less than they used to earn.

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.

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.

South Seas Island Resort, which employs about 300 in Captiva, Fla., cut jobs during the downturn, but has now begun adding staff.

"Right now I view this as an employer's market," says Rick Hayduk, managing director, who says the resort is attracting senior people at lower salaries than before. "The past 24 months have taken a toll on a lot of individuals," he says. "I think they abandoned their hopes to receive compensation similar to what they did when they lost their jobs. We have been able to reevaluate some of our starting wages."

The upshot: The resort will keep labor costs flat this year, even as revenue picks up and the resort selectively adds workers. . . .

Find the rest of the article at the url below.

— Sudeep Reddy
Wall Street Journal





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