Unemployed face pay cuts in new jobs
Jobs in economic recovery pay less than positions lost
Associated Press
Sunday, January 10, 2010

Unemployed for nearly a year, David Becker was relieved to land a new job in information technology last summer.

The offer carried a price, though: It was a lower-rung job than the one Mr. Becker had lost. He had to uproot his family from Wisconsin to Nevada. And, like many formerly jobless people who find work these days, Mr. Becker is now paid far less than before -- $25,000 less.

It's one of the bleak realities of the economic recovery: Even as more employers are starting to hire, the new jobs typically pay less than the ones that were lost.

In the government's data, a job is a job. More jobs point to a growing economy. But to people who used to earn $60,000, a new $40,000 job means they'll spend less -- and contribute less to the recovery.

"In most cases, it means a subdued expansion, for sure," said Marisa Di Natale, the director at Moody's Economy.com.

Worse for those affected, people hired at lower wages in a tight job market tend to lag behind their peers for years, sometimes decades. For example, workers laid off during the 1981-82 recession earned 20 percent less than people who remained in a job -- even 20 years after they were rehired, a Columbia University study found. The study examined pay for white- and blue-collar workers, managers and hourly workers.

That means a few short months of unemployment could haunt workers such as 34-year-old Jessica Moore for years.

Ms. Moore had been employed since graduating from Penn State University more than 12 years ago. But in March, she was laid off from her job as managing editor for digital media at the nonprofit Sesame Workshop in New York, which produces Sesame Street .

In April, Ms. Moore got an interview for a job opening as editor and publisher of the nonprofit Teen Voices magazine in Boston. The job paid 25 percent less than her previous position. And the company was a fraction of the size of Sesame Workshop.

Still, she leapt at the offer.

"I wanted the immediate security," she said.

It's hardly surprising that employers are being stingy with pay these days. Their own businesses were squeezed by the recession. Most depend on consumer spending, which remains tepid.

The first jobs to emerge from a recession typically aren't well-paying ones, said Till Marco von Wachter, a Columbia economics professor. Companies delay hiring for higher-paying jobs, in particular, until they're confident the recovery will last, he says.

In addition, as the unemployed compete for the few job openings available, employers face no pressure to raise wages.

More than six people are now vying, on average, for each job opening, according to Labor Department data -- compared with just 1.7 workers per opening when the recession began in December 2007.

That's why Mr. Becker considered himself lucky to get a job offer this summer as an information-technology manager after months of searching. That was even though he had to move his family from Milwaukee to Reno, Nev., and take less pay than he'd been used to.

"I think a very large number of people will never have the life they had at one time," he said.

LOWER INCOME Pay tends to stagnate during or immediately after recessions -- and it's often severe during "jobless recoveries," when hiring remains weak long after the economy starts growing again, according to a 2005 study by Princeton University economist Henry Farber. For example, workers who lost jobs and found new ones from 1981 to 1983 took average pay cuts of 10.8 percent once they found new jobs, the study found. But from 1983 to 1985, as hiring accelerated, that pay cut narrowed to less than 8 percent. But those who lost jobs and were rehired from 2001 to 2003 averaged bigger pay cuts of 13.6 percent as hiring stagnated for nearly two years during a jobless recovery. By contrast, formerly unemployed people who were rehired during the boom years of the late 1990s averaged a minuscule pay cut of 0.2 percent, according to the study, which examined pay data from the Labor Department. -- Associated Press

From the Sunday, January 10, 2010 edition of the Augusta Chronicle


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