Earnings taking a hit

Many details of the financial crisis can seem pretty abstract, from collateralized debt obligations to credit default swaps. But with the country either in a recession or headed toward one, more people are likely to experience the crisis in the most concrete terms of all – their paychecks.

Already, raises are becoming more scarce. Companies are trimming hours or laying off workers. And with inflation reaching the highest point in years, a stagnant wage is like a cut in pay.

“The number of sacks of groceries that come home with me after I’ve spent a $100 bill has significantly shrunk,” said Paul McCarthy, a 50-year-old widowed father of two teenage boys. “Food, fuel, heat, energy – all these things are going way up.”

McCarthy has received one hourly raise in the past four years working for a small exterior remodeling company in Spokane. But he’s also seen his hours cut, he said.

Sinking incomes – like inflation and layoffs – go hand in hand with recessions. During the recessions of the past 30 years, the per-capita personal income of people in Spokane and Kootenai counties dropped between 0.5 percent and 4.4 percent, adjusted for inflation, according to figures compiled by Grant Forsyth, an economics professor at Eastern Washington University.

“Growth almost always declines” in a recession, said Forsyth, who believes the country slipped into one this summer. “Sometimes it goes negative. How much really depends on the type of recession it is.

“My guess is we will see income decline … but it won’t be as great as in other regions of the country.”

Incomes have been on a collision course with inflation for a few years, with prices for nearly everything rising much faster than usual in the past three years, driven by higher fuel prices. Workers’ benefits packages are also shrinking as more health care costs are shifted onto employees.

In every recession since the 1970s, median family incomes have dropped between 3 percent and 7 percent over a period of years, according to a report in the New York Times.

Columnist David Leonhardt wrote earlier this month: “Income for the median household – the one in the dead middle of the income distribution – will probably be lower in 2010 than it was, amazingly enough, a full decade earlier. That hasn’t happened since the 1930s. Already, median pay today is slightly lower than it was in 2000, and by 2010, could end up more than 5 percent lower than its old peak.”

Ripple effect

Elizabeth Kurtz has been an executive assistant for six months for Centennial Properties, a subsidiary of Cowles Co., which also owns The Spokesman-Review. She recently got a raise of 2 percent, less than half the rate of inflation so far this year. The raise was a “token,” she said, but she was glad to get it.

Kurtz, a 55-year-old with a background of working for universities and state government, said she has taken a second job and moved into a cheaper apartment to help keep down expenses, “instead of expecting someone to give me more for this job.”

She said she thinks too many people feel entitled to annual raises and increased benefits. If people want more money, Kurtz said, they should go out and earn it.

“I don’t think that’s the obligation of the employer at all – regardless of whether they’re government or private,” she said.

In the current environment, lots of workers would be happy with any raise. Forsyth said that per capita personal income did grow from 2006 to 2007, by 1.6 percent, but he expects that to slow.

Obviously, the people who lose their jobs during a recession take the largest hit. But even in hard times, the number who lose their jobs is relatively small compared with those who will see an impact in their paycheck. Those who keep their jobs but see their hours cut or their wages frozen are paddling backward against rising inflation.

“It doesn’t take a very big spike in inflation to cause their real wage growth to fall dramatically,” Forsyth said.

Worker pay has a big influence on a range of other factors that can ripple through the economy – from consumer confidence to savings rates to overall economic growth. Forsyth thinks the recession is worsening from the financial crisis, but the regions that will be hardest hit are those with large manufacturing bases and those most affected by the housing bubble.

In the near term, one of the big employment questions is the holiday retail season, which typically shows a bump in hiring, he said.

“One of the issues going forward is whether we’re going to see a surge in Christmas hiring,” Forsyth said.

‘A lot of hits’

McCarthy, who works for the exterior remodeling company, earns $12 an hour plus some sales commissions. It’s not a lot more than he was making in 1995, when he brought in $10 an hour at a manufacturing job.

In fact, it seems to him his $12 today buys less than his $10 did 13 years ago – and he’s right. Adjusted for inflation, that 10-spot would be about $13.50 today.

McCarthy understands that employers are struggling, too. He turns to some social programs to help make ends meet – visiting a food bank or seeking heating assistance in the winter, when his work goes away for the season – and is sensitive to the fact that such programs are controversial among some people. Throughout the economy, he said, there is tension and bad blood as people try to get by.

“Right now, there’s a fundamental mistrust of the government, a fundamental mistrust of each other, a fundamental mistrust of employers toward employees, and employees toward employers,” he said.

He’s doing what he can to save, clipping coupons and winterizing his house and shopping for clothes at Goodwill. But it’s harder and harder to make the dollar stretch, he said.

“I’m taking a lot of hits in a row,” he said.