Reduced Salaries May Not Return To Previous Levels Quickly

By Staff
November 16, 2009

Recent data is pointing to an alarming trend: Salaries are being cut considerably, and many companies may be reluctant to restore pay to previous levels because so many people are willing and available to work for less.

The Wall Street Journal reports that many workers who were laid off and exhausted their unemployment benefits are now returning to jobs with salaries considerably less than before. In addition, last week the government reported that salaries and benefits increased a mere 1.2 percent this past year--the smallest change since the data started being reported in 1975. Some economists are even going so far to predict that the statistic will soon dip into the negatives.

The Business Courier of Cincinnati reports that according to a recent survey conducted by the Health Foundation of Greater Cincinnati, over one-third of adults polled said they had their salaries reduced in the past 12 months. Moreover, 26 percent had seen their health plans reduced or eliminated, while 22 percent experienced cuts to retirement plans.

"This is the sort of thing that's under the radar," said Jennifer Chubinski, director of health data improvement for the foundation, who was quoted by the Business Courier. "We measure people who don't have jobs, but we don't do a good job of measuring people who are still employed but have had some reduction in salary or benefits. These are things with the potential to really have an effect on a household's bottom line."

Lynn Felske, a certified public accountant who was interviewed by the Wall Street Journal, said that she took more than a 20 percent pay cut after being unemployed for over nine months. "I used to get what a controller would get," she told the Journal. "Now, I'm getting paid the same grade as an accounting manager. A year ago, I would have said no to this salary."

What's more, salaries are not likely to spring back to their previous levels once the economy rebounds, said Dennis Curran, vice president of human resources for KDM POP Solutions Group, who was interviewed by the Business Courier. He explained that businesses are likely to take a conservative approach for many years to come.

Paul Harrington, associate director at the Center for Labor Market Studies at Northeastern University in Boston, noted in the Los Angeles Times that most workers do not expect incomes to fluctuate so radically.

"For many adults, in their entire lives the idea that nominal wages would fall was not a possibility," he was quoted as saying in the LA Times. "This is a completely new issue."

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