The Severity of the Hit to Wages from the Great Recession

Here is a bit from a Wall Street Journal article on the Great Recession. The title of the article says it all: "Downturn's Ugly Trademark: Steep, Lasting Drop in Wages".

Between 2007 and 2009, more than half the full-time workers who lost jobs that they had held for at least three years and then found new full-time work by early last year reported wage declines, according to the Labor Department. Thirty-six percent reported the new job paid at least 20% less than the one they lost.

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.

...

Mr. von Wachter, the Columbia economist, has studied three decades of Social Security data in order to track the paychecks of workers from the 1981-82 recession who experienced sudden mass layoffs. Those workers saw their earnings drop 30% on average compared to similar nondisplaced workers. Even after 15 to 20 years, those workers lagged behind: Their wages were still 20% lower than their counterparts who didn't lose their jobs in the original layoffs, according to his research.

A key part of earnings losses, Mr. von Wachter and his fellow researchers found, comes from the fact that workers accumulated skills over a decade or two that may be outdated and not garner the same wages after a downturn. And then instead of gaining new skills for a higher-paying job, they often take what they can get at a lower wage and stop their job hunts.

"Given that the process of recovery can take so long, it's important to make people who were unemployed realize that if they really want to recover they may need to stay in the game for a long time, and perhaps consider a switch in careers," Mr. von Wachter said.

Sadly the 90% who have kept their job through this Great Recession will probably never fully understand the depth of despair and unhappiness the unemployment has caused.

I remember as a kid thinking about the utter unfairness of WWII when 10% of the men were mobilized for war. But the 90% who stayed behind got to enjoy the greatest growth in wages since the Great Depression. They got to go to movie shows and go out dancing with the girls. How unfair life is. It fell upon the shoulders of 10% to bear arms and face death. The other 90% got to sing and dance their way through the war.