New jobs at lower pay put crimp on recovery

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

The offer carried a price: It was a lower-rung job than the one Becker had lost. He had to uproot his family from Wisconsin to Nevada. And, like many formerly jobless people who find work these days, Becker is 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, 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 Jessica Moore, 34, for years.

Moore had been employed since graduating from Pennsylvania 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, 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 the size of Sesame Workshop.

Still, she leapt at the offer.

"I wanted the immediate security," she said.

It's not surprising that employers are being stingy with pay these days. Their 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 vying, on average, for each job opening, according to Labor Department data, compared with 1.7 workers per opening when the recession began in December 2007.

That's why 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.

Becker, 48, oversees fewer than a dozen employees, compared with the 60 he managed before the recession when he earned $25,000 more, or $150,000. He drained $100,000 in savings to support his family during a year of unemployment to pay his mortgage, health insurance and college tuition for two children.

Though his current job is a step down, he wasn't prepared to hold out for a better and higher-paying one. Too many other workers were lined up for each opening he sought.

John Irons, research and policy director for the Economic Policy Institute in Washington, said that as millions of unemployed workers accept lower pay for new jobs, their collective wage cuts will likely stifle income growth for years.

Inflation-adjusted hourly wages rose throughout most of 2008 but peaked at an average $8.65 in May for nonmanagement hourly employees, as measured in 1982 dollars, according to Labor Department data. (Unadjusted for inflation, the average was $18.53.) Since then, inflation-adjusted wages have fallen 1.3 percent to an estimated $8.54.

The resulting wage depression is part of the economic "scarring" of the labor force, Irons said. For example, inflation-adjusted wages stagnated for four years after the downturn of 1991. And they remained mostly flat from 2002 to 2005, after the mild recession of 2001, according to Labor Department data.

Consumers already are saving more and spending less than they normally do, because of high debt and tight credit. With newly rehired workers keeping tight grips on their wallets, consumer spending could stay weak well into the recovery, sapping its strength. How much will hinge on how long and how deeply wage growth lags.