Are Wages Falling?

Are wages falling in this recession?

The answer to that question depends on who's wages we're talking about. Different angles of this question will yield different answers.

With nearly 15 million Americans unemployed (and that doesn't count "disaffected" job seekers who've dropped out of the labor force or taken part-time work in the interim), competition for jobs hasn't been this high in decades.

And just like many of us learned in Economics 101, when demand falls and supply increases, prices fall (in this case, prices = wage rates). Generally this is most pronounced at the hiring level, as most companies are generally reluctant to cut wages for their workforces overall.

Despite the downward pressure, if you consult salary surveys coming out the first half of 2009, most will probably show a modest (albeit small) increase in overall wage rates from last year. Why? The reason is that salary surveys are generally measures of pay for employed workers, not a measurement of how hiring rates are changing, although that data eventually works its way into databases that survey vendors report data from.

Chances are that for most jobs, hiring rates are indeed falling, while overall wages rates are fairly stable (wages rates are stable to slightly increasing for those that have remained employed). For instance, an article on the SHRM (Society for HR Management) website reports that hiring rates have dropped 7.0% in the service sector and 10.0% in manufacturing year over year (March '08 to March '09). While these are large drops by any standard, that doesn't mean that wages are falling precipitously everywhere. We know that both of these areas are very weak right now, so these drops are not too shocking.

But what about stronger areas like health care or government (almost nothing can stop the growth of government!). We doubt wages have fallen for nurses and many other still in-demand health care workers, and for "hot skill" roles in technology, such as experts in web search technology or social networking (Twitter anyone?).

A good labor market analogy is that labor markets are much like the regional weather patterns, full of micro-climates within larger overall weather trends and systems. We know, for instance, that certain areas within specific wine growing regions are slightly cooler/warmer or wetter/dryer than other nearby areas, sometimes just a hundred yards away, and it's the same with labor markets. We know the macro trend is down in this labor market, but that doesn't mean it's a universal trend that applies to all jobs and all regional labor markets. Do your research before making sweeping generalizations based on the larger overall pay trends.

Doug Sayed, SPHR, CCP, is principal at Applied HR Strategies, Inc., a compensation consultancy based in the Seattle area. Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience, and a Master's degree in HR management from the Ohio State University. He is the lead developer of the StrategicPay™ Series, a series of "do it yourself" compensation resource toolkits, the first edition of which has just been released for publication.