The Economy July 10, 2009, 7:54PM EST

Even the Employed Lose with Hour and Wage Cuts

Job losses tell only part of the story. Economists worry that falling work hours and pay will produce "the mother of all jobless recoveries"

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In some respects, Kristi Pohly is lucky. The 33-year-old marketing manager still has her job at Pharmatech Oncology 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."

David Rosenberg, 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.