As the recession lingers, many workers have seen their incomes decline or even vanish, forcing them and their families to make do with less. Most dread how the losses may affect their finances over the long term.
Three groups are experiencing significant declines in income, says Steve Hipple, an economist at the Bureau of Labor Statistics:
- 13.2 million unemployed workers;
- 9 million workers who want to work full-time but can only find part-time work; and
- 2.1 million marginally attached workers, or those who want jobs but haven't looked recently.
Salary freezes are also becoming more prevalent. A February survey by Watson Wyatt Worldwide shows that 42 percent of companies had already put salary freezes into place, an increase from 13 percent in December 2008.
Amid reports of such discouraging numbers, workers wonder when the fiscal slump will ease, and what the impact will be on their incomes. Some experts say earnings will decline in the short-term, but they'll eventually rise as the recession fades. Others think incomes will stay down for an extended period of time.
Looking to the Future...
"In broad brush strokes, what we know is that wages and family incomes fall during recessions," explains Heidi Shierholz, an economist at the Economic Policy Institute in Washington, D.C. "For most people, things are bad right now, but the recession will not last forever, and wages will recover." Still, young workers could stand to suffer long-term effects from the recession, she notes, especially if they're unable to land a job in their chosen field. "If you can't get a job that starts you off on a path to a career -- that can have implications forever for you," Shierholz says.
Shierholz says she expects unemployment to stay elevated for a few years, "and with that comes downward pressure on wages." What won't rebound, she notes, is housing wealth: "Housing wealth was a bubble, and that's gone."
Financial expert and author Herb Kay thinks the situation is more dire.
"I think it's much worse than what's being reported," Kay says. "This recession will be closer to the Great Depression. We are looking at 10 years of wage depression. We will be lucky to be out of this in 10 years. A significant portion of the population will be in trouble."
... and the Past
Shierholz says workers and families at the lower end of the income scale tend to be hit harder by recessions. That has been especially true starting with the recession of the early 1980s.
In past recessions, inflation was a problem for workers, as their incomes didn't keep pace with rising prices of goods and services, but that's not the case today, Hipple points out. The Consumer Price Index, which measures inflation, has decreased 0.4 percent over the last year, the first 12-month decline since August 1955, according to the Bureau of Labor Statistics.
Unique Lessons?
The current recession may offer some unique lessons, experts say. Shierholz says that as middle-class wages have stagnated over the last 30 years, more and more workers have taken on debt to increase their standard of living, and the current recession has shown you can't build an economy on that. "So hopefully one thing that will come out of this is renewed efforts to bolster the incomes of regular folks," she says.
Todd P. Steen, professor of economics at Hope College in Holland, Mich., says the recession has shown workers they can't afford to be complacent: They need to be ready for anything in the labor market, and must continue pursuing education and upgrading their skills. "Make yourself invaluable to your employer so they see you adding value to the company; otherwise, they will get rid of you," Steen says.
Laura Sejen, global head of strategic rewards consulting at Watson Wyatt in New York, says the severity of this recession has heightened and reinforced the need for employers to communicate more effectively with employees. Avoiding difficult discussions about particular actions a company is going to take is not the way to go, she says. Instead, companies should be as forthcoming as possible, to limit the negative impact on employee morale.
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