It's not surprising that worker incomes have been under pressure during the Great Recession. Employers typically clamp down on wages when the economy slows, and the latest downturn was the worst since the 1930s. Most workers are well aware that employers aren't exactly going to be handing out huge wage hikes with an official unemployment rate of 9.7% and the government's broadest measure of unemployment, which includes those marginally attached to the workforce and people working part time who would like full-time employment, at 16.5%, according to the Labor Dept.'s January employment report released Feb. 5.
What is disturbing is that the outlook for wages and incomes over the short and long term looks bleak even when the recovery is in full swing. The pay rewards for work have been severely lacking for a majority of workers over the past three decades. Whether the measure is wages, earnings, or total compensation, the inflation-adjusted pay narrative remains the same: Workers have seen their inflation-adjusted pay go up only a little during the past four business cycle expansions while most of the gains have been captured by the top 10% to 15% of workers. A major lesson of the Great Recession is how financially vulnerable workers are with jobs and incomes less secure than ever.
"It isn't a healthy economy," says Paul Osterman, professor of human resources and management at the MIT Sloan School of Management. "There is a broad sense that it's a precarious labor market."
Average hourly earnings for all private-sector workers are up 2% over the past 12 months, according to the Bureau of Labor Statistics. Large employers are expected to raise employee base salaries by a mere 2.5% this year, according to Hewitt Associates (HEW), the human resources consulting firm. That would be the second-lowest wage increase on record, with last year's 1.8% gain as the smallest ever. And to keep fixed costs down, companies are embracing variable pay plans, annual lump-sum bonus payments that don't get added to base salary. Some 90% of U.S. corporations have put in place a broad-based variable pay plan for everyone below the executive level, compared with less than 50% in the early 1990s.
"I wish I was casting a brighter future," says Ken Abosch, head of Hewitt's North American broad-based compensation consulting practice. "But it is what it is, and we might as well get used to it."
Those workers with jobs are likely to put in more time in the office and on the assembly line in 2010. Employers typically hike the hours of their existing employees early in a recovery before posting help wanted signs. The average workweek for all private employees in January was 33.9 hours. Bringing the hours worked back to the average workweek at the start of the recession in December 2007 (34.7 hours) is the equivalent of hiring 2.5 million workers, according to Heidi Shierholz, economist at the Economic Policy Institute (EPI) in Washington, D.C.
How many workers imagine they'll stroll into the boss's office and insist on a 5% to 10% raise this year or they'll leave? The boss's answer in most cases, assuming he is able to speak after a fit of convulsive laughter, will be "goodbye."
The income story in America is deeply troubling. Inflation-adjusted average hourly earnings for production and nonsupervisory workers (a category that encompasses 80% of the workforce and leaves out higher-paid managers and supervisors) rose by an anemic 0.1% a year from 1979 to 2007, according to the EPI. A potent combination of economic and social forces has conspired to keep wages down for most workers with the exception of a brief period of white-hot economic growth in 1995-2000. Private-sector unions have largely disappeared. Companies have outsourced all kinds of tasks to cheaper places overseas and low-cost contractors at home. The upward spiral in health-care costs has eroded wages.
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