The long and severe recession is crushing wages, as the long-term unemployed settle on jobs that pay far less than their old gigs. A big decline in wages is a rare side effect of economic downturns since the Great Depression--the only other recession that featured large wages cuts was in 1981-82. "But the latest downturn is already eclipsing that one," the Wall Street Journal's Sundeep Reddy reports. And with joblessness hovering above 9 percent for 20 months, and likely to stick there for most of this year, wages could drop further.
It's Gonna Be Hard to Dig Out of This Hole, The Atlantic's Derek Thompson observes: To give you a sense of how deep our employment hole is, consider one statistic: Even if we doubled the rate of December's job growth, we would still only achieve full employment by the mid-2020s. ...
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. Mr. Szabo says he keeps an Excel spreadsheet tracking his job search. By early 2004, he says he had applied for 750 jobs. A year later, it topped 1,000. Since then, he says he sent out 1,000 more resumes
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.
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.
That’s what we call the “race to the bottom.”
In a 2008 study, a group of economists tracked the wages of 60,000 father-child pairs from 1978 to 1999. Children whose fathers went through mass layoffs in the 1982 recession ended up with 9% lower earnings than similar children whose fathers didn't experience the job cuts.