Returning Workers Face Steep Pay Cuts -- Wage Erosion Threatens to Slow Economic Recovery

From The Wall Street Journal:

Nearly a year after losing his job at a Vermont plywood maker, 40-year-old Robert Hudson is back at work. Here is the catch: His paycheck is half that of his old job -- and the same as when he was 18 years old.

In the past year, more than five million people exhausted their unemployment benefits, according to the government. Now, some are returning to work at jobs that pay considerably less than what they were earning before, a trend that threatens to slow an economic recovery.

Wages and benefits paid by private companies increased just 1.2% -- adjusted for inflation -- for the year ended September 2009, the smallest change since the U.S. began measuring in 1975, the government reported last week. Some economists expect the figure to continue downward in coming months and to turn negative for the first time since such records have been kept.

"These losses can become permanent because you have to start again and work your way up," said Till von Wachter, an economics professor at Columbia University in New York.

The wage cuts come as the unemployment rate, at 10.2%, is at its highest level in more than 26 years. To help those who can't find jobs after extensive searches, President Barack Obama has signed a measure adding 20 more weeks of federal unemployment benefits.

Those returning to work are taking an average 40% pay cut from their old jobs , estimated Kenneth Couch, an economics professor at the University of Connecticut.

In the past, Prof. Couch said, it has taken six years before people were earning an average of 80% of their old paycheck, with younger workers creeping closer to their old wages more quickly than older workers.