Sticky wages are more than a disgusting check you receive from your employer - employees are likely to not want to take a job for less money than one they worked previously. Sticky wages are one of the reasons that recessions can last a long time, sort of like the 'Great Recession' of the recent past. Even though the recession is officially over, high employment still exists, and a number of economic indicators still are at shaky levels. Anecdotally, there are many examples of people who took lower paying jobs in order to get back to work, however the official data shows that wages stayed flat or even rose, even throughout the recession.
How Could This Be?
Instinctively, a recession seems to be a time when people would accept lower wages in order to preserve their employment. During the recession's peak, many companies cut wages due to the downturn yet still were concerned about employee attrition. With the large number of news stories about these companies, one could be forgiven for thinking that average wages were declining during the period. However, the Bureau of Labor Statistics verifies that the 3 month average percentage change for compensation was always increasing (albeit slowly, in some cases) throughout the downturn. This chart shows the 3 month percentage growth in that statistic:
- 3 Month Compensation Growth (Percent) (BLS)
In the first quarter of 2009, the 3 month growth dropped to .2%, followed by .3% the next quarter... but the statistic never went negative. Even as some firms were rolling back wages, other firms were taking the best performers and actually increasing wages market wide! Compare that to the unemployment rate (also from the BLS):
- Seasonally Adjusted Employment Rate (BLS)
As you can see, even though the unemployment rate was increasing rapidly, wages stayed stable.
What's Your Point?
Obviously, the pain of the current recession wasn't spread equally among workers or industries. According to the labor department, there are a large number of people who took wage cuts due to the current recession - comparable to even the 1981 to 1982 recession. In fact, according to that WSJ article (and the Labor Department), "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."
Add that striking data to the labor force participation rate (which has declined as people give up their job searches), and a good picture of a bad recession comes into view... the recession was generationally bad, on more than one measure.
- Seasonally Adjusted Labor Force Participation Rate, Percentage, Adults over 16 (BLS)
Your comments?
