The Economy

Even the Employed Lose with Hour and Wage Cuts


In some respects, Kristi Pohly is lucky. The 33-year-old marketing manager still has her job at in Denver, having worked there for more than six years. But the recession has hit Pohly from another angle. At the beginning of June, she and her co-workers took a 25% pay cut and switched to a 32-hour workweek. Pohly had been earning $55,000 at Pharmatech; her pay is now $41,250, or about $400 per month less on a take-home basis. To keep up with the $1,100-per-month mortgage on her house, Pohly took in a roommate at the beginning of that month. The transition, she says, hasn't been easy. "We are working 20% less, but getting paid 25% less. Morale has pretty much hit the floor." Pohly's plight reflects patterns emerging in the job market that go beyond the headline unemployment rate and job-loss numbers. In addition to the loss of 467,000 jobs in June, economists worry about the impact of stagnating or falling pay and reduced hours of workers. Shortest Workweek on Record Buried in the June jobs report is this critical bit of information about the labor market: The average workweek for the month fell 0.1 hours, to 33 hours, the lowest ever recorded for data that go back to 1964. Average weekly earnings, meanwhile, actually fell to $611.49 in June, from $613.34 in May. Hourly earnings remained flat. Economists say the combination of reduced hours and pay, along with continued job losses, could significantly slow a recovery as even the employed lack the means to boost their spending. "The amount of money taken home is not about the number of jobs but about hours worked," says Mike Englund, chief economist for Action Economics, an economic forecasting firm. "The contraction in underlying income [of those working] is pretty powerful. The job market is continuing to contract at a rapid clip." , chief economist and strategist for Gluskin Sheff & Associates ( (GS.TO)), a Toronto wealth-management firm, also draws gloomy conclusions: "The combination of job loss and decline in hours worked [in June] means there was effectively a decline of at least 800,000 jobs." He says if these trends continue, the economy will enter a downward spiral of lower consumer spending and falling prices, or deflation. What's worse, unemployment may not peak for another two years. In that case, Rosenberg says, we are destined for "the mother of all jobless recoveries." Footing More of the Bill Cuts in pay and hours are rippling throughout the economy in businesses large and small and industries from mining to retail. It is well known that such large employers as FedEx ( (FDX)), Hewlett-Packard ( (HPQ)), and Best Buy ( (BBY)) have trimmed pay. But the trend is also playing out at countless small businesses and nonprofit organizations. With donations and grant awards reduced, the staff of SAVE, a suicide prevention nonprofit in Bloomington, Minn., is enduring a number of cuts. On top of a salary freeze that's been in place since May, staff will get salary reductions of 10% to 20% beginning July 22. As of July 15, SAVE staff will see the elimination of such benefits as their 3% employer 401(k) match, and long- and short-term disability and life insurance. They'll also have to start footing the bill for 25% of their health-insurance premiums, which had been fully paid by the organization. Daniel Reidenberg, executive director of SAVE, says he's also considering reducing staff hours. But he is worried about potential consequences. "Rising anxiety and depression means the need for our services is greater than ever before," says Reidenberg. "It's the worst possible time for us to be cutting back." "A Step Back" For many workers, hours have already been cut. As of July 10, Matt Garville, 23, will no longer be working Fridays at his job as an account coordinator for a Manhattan public relations firm. That means a 20% salary cut, along with the loss of his health benefits. Having graduated from Fordham University in 2008 with a degree in economics and journalism, Garville started working at the firm just three months ago. "I really like it here, but I am worried," he says. "I thought their hiring me meant it is [a] relatively stable [job]. I guess not." Garville says the pay cut means he won't be able to afford moving from his parents' home in Old Tappan, N.J., into New York City to live with friends. "It's a step back," he says of the pay cut. "No one wants to take a step back." He is trying to make the best of the situation by making use of his newly spare time. He says his order of business on days off will be running errands he previously didn't have time for, like getting his hair cut and his DVR player fixed. "Then I'll be networking," he says. "These days, no job is secure." With the job market on such shaky ground, it can be hard for many workers to believe the economy is producing "green shoots" that point to better days. While Action Economics' Englund is still hoping for a return to positive economic growth in the third quarter of this year, he says troubles in the job market could jeopardize that timing. "If income isn't growing and if hours worked don't rise in the second half of the year, it's going to be hard for the consumer to recover," says Englund.
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Herbst is a reporter for BusinessWeek.

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