U.S. Workers' Wages Stagnate As Firms Rush to Slash Costs
By Annys Shin
Washington Post Staff Writer
Sunday, May 3, 2009

In December, Timothy Owner, a trombone player with the Virginia Symphony Orchestra, called his landlord to tell her he might have trouble paying rent around May. He and the orchestra's 53 other full-time members, many of whom are paid less than $30,000 a year, had agreed to a month-long furlough.
The furlough, which ended yesterday, was rough, Owner said. But he and other musicians acknowledged that the alternative could have been worse. "We're less unhappy if this means the orchestra will survive," he said.
Across the country, workers' earnings are stagnating or, in some cases, declining. For many Americans, the setbacks are all the more troubling because they have lost so much wealth in recent months, with the value of their homes and retirement packages plummeting.
Employers big and small have resorted to slashing hours and once-unthinkable wage cuts. In March, staffing agencies that work for Microsoft agreed to a 10 percent reduction in their bill rate. In April, hotel operators in New York City asked unionized waiters, housekeepers and bellhops to reopen their contract and accept wage cuts. State governments such as Indiana's have frozen pay, while others, including Maryland and California, have furloughed employees.
According to a recent Washington Post-ABC News poll, more than a third of Americans say they or someone in their household has had their hours or pay cut in the past few months. That's a nine-point increase since a similar poll was conducted in February.
Wages in absolute terms -- not adjusted for inflation -- tend not to fall, even during economic downturns. In a study of the recession of the early 1990s, Yale economist Truman Bewley found that employers are loath to reduce wages because of the potential impact on morale and productivity. That's why wages are considered "sticky" -- they rarely slip.
So far, there's no evidence that cuts to compensation have reversed overall wage growth. But, as in past recessions, the growth is slowing rapidly. The Labor Department's employment cost index, which tracks wages, salaries and benefits, rose in the first quarter by the smallest amount since the index began in 1982.
That bodes ill for those workers trying to rebuild nest eggs depleted by the housing and stock market downturns. To boost their savings, they typically need faster income growth or lower spending, and, as Harvard University economist Lawrence Katz put it, "It is going to be a long time before we see sustained pay raises."
The previous U.S. recession, in 2001, was relatively weak and didn't last the full year. But once inflation is factored in, wages actually fell, sapping workers' buying power, and didn't return to pre-recession levels until 2006, just before the economy fell into its latest funk. As a result, from 2000 to 2007, the median income of American households, when adjusted for inflation, fell by $324, according to the Commerce Department.
By comparison, the current recession has already lasted 17 months and is far more severe than the last one.
Wages for new hires have already fallen, according to an index compiled by the Society for Human Resource Management, a trade association based in Alexandria. Temporary workers' hourly rates are shrinking, too. Joanie Ruge, senior vice president of the staffing firm Adecco Group North America, said her company's clients have shaved as much as 10 percent off their rates.
In recent months, falling energy and food prices have helped Americans stretch their money. But inflation could easily erode those gains if it returns to a more normal annual rate of about 3 percent.
Experts fear that wages will not keep up. Once the recession ends, economists expect, the recovery will be long and slow, with sluggish job creation. Without a tight labor market, employers won't have to compete as much for talent and workers will have less leverage to push for higher pay, experts say.
"Once you knock down wage growth, it will take a substantial change in unemployment to move it again," said Lawrence Mishel, president of the Economic Policy Institute, a left-leaning think tank in Washington. "The recovery is going to be weak. I think as wage growth subsides, it is going to subside for many years."
Members and employees of the Virginia Symphony Orchestra are bracing for more hard times. The orchestra has had to contend with a $1.5 billion debt. Carla Johnson, the VSO's executive director, said she noticed donations and ticket sales start to slide in 2007, before the recession officially started. After the economy took a nose dive in September, grants dried up. People who had pledged to buy season tickets reneged. Some longtime subscribers, in particular retirees living off investment income, "were so embarrassed they could barely speak to us," Johnson said. The musicians were furloughed, and the administrative staff, including Johnson, took a 20 percent pay cut. The two moves saved the VSO about $500,000.
Since then, nearly everyone with the orchestra has had to make adjustments. Viola player Matthew Umlauf, the primary breadwinner for his family of four, shelved plans to buy a house in order to put more money aside in an emergency fund. Owner, the trombone player, called friends around the country in search of gigs in April to make up for his lost income. Public relations director Donna Hudgins planted a vegetable garden, while her husband, a judge who recently stepped down, went back to work as a substitute judge. He's worked every day since he retired, she said, and she has no plans to stop, either. "I'm working longer than I ever thought I would," Hudgins said.
She and other VSO staff, who are not unionized, had little say in the changes. But the orchestra members, who are organized, did. They accepted the furlough knowing that the standard cost-cutting measure -- layoffs -- was not an option. A clarinet player, for instance, can't pick up the slack for a missing violinist.
Orchestras everywhere are feeling the pain. Just last week, members of the Baltimore Symphony Orchestra volunteered to give up wage increases and other benefits in order to save the BSO $1 million.
The VSO members will probably have to make further concessions during upcoming contract negotiations, Johnson said. While the musicians don't relish the idea of more financial hardship, the orchestra members said they will find some way to keep performing.
"We don't stop playing because times get tough," Owner said. "We love what we do."