From the Wall Street Journal | Nov 12, 2009

Many Bouncing Back From Layoffs Struggle to Recoup Earning Power as Wage Erosion Threatens to Slow Economic Recovery

By IANTHE JEANNE DUGAN

Nearly
a year after losing his job at a Vermont plywood maker, 40-year-old
Robert Hudson is back at work. Here is the catch: His paycheck is half
that of his old job -- and the same as when he was 18 years old.

In the past year, more than five million people exhausted their
unemployment benefits, according to the government. Now, some are
returning to work at jobs that pay considerably less than what they
were earning before, a trend that threatens to slow an economic
recovery.

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Robert Hudson inspects a truck at his Rutland, Vt., workplace on Wednesday. His new job pays much less than his old one.

Wages
and benefits paid by private companies increased just 1.2% -- adjusted
for inflation -- for the year ended September 2009, the smallest change
since the U.S. began measuring in 1975, the government reported last
week. Some economists expect the figure to continue downward in coming
months and to turn negative for the first time since such records have
been kept.

"These losses can become permanent because you have to start again
and work your way up," said Till von Wachter, an economics professor at
Columbia University in New York.

The wage cuts come as the unemployment rate, at 10.2%, is at its
highest level in more than 26 years. To help those who can't find jobs
after extensive searches, President Barack Obama has signed a measure
adding 20 more weeks of federal unemployment benefits.

Those returning to work are taking an average 40% pay cut from their
old jobs, estimated Kenneth Couch, an economics professor at the
University of Connecticut. He based the number on the experiences of
Connecticut residents during the 2001 recession and similar studies
elsewhere during the 1981 recession.

In the past, Prof. Couch said, it has taken six years before people
were earning an average of 80% of their old paycheck, with younger
workers creeping closer to their old wages more quickly than older
workers.

The
decline in wages is affecting people in all sectors of the economy.
Lynn Felske, 45, a certified public accountant in Pleasanton, Calif.,
took more than a 20% cut in pay after being out of work for 9½ months.
She typically works on one job for several months and moves quickly to
the next, without ever more than a week off in between.

"I used to get what a controller would get," Ms. Felske said. "Now,
I'm getting paid the same grade as an accounting manager. A year ago, I
would have said no to this salary."

Catina Martin, 37, was laid off in January as an assistant in the
sales department at Hartford Insurance in Charlotte, N.C. She recently
took a job at a warranty company and took a pay cut of $13,000 -- about
25% -- setting her back to the same salary she was earning when she
joined Hartford a decade ago.

After 30 days, she will get health insurance benefits. But she said:
"In terms of the money situation, it's going to be hard to get that
back."

For Mr. Hudson, the new job marks his first economic step backward
since he began working. Two years ago, he sold his Boston home to take
a job at Rutland Plywood Corp. in Vermont, running the night shift in a
mill, supervising 50 people. His salary was $45,000, plus a bonus of as
much as $8,000. His wife stayed at home with their two children.

Last November, he was laid off. He said he sent his resume to 1,000
employers, while collecting weekly unemployment checks of about $420.

"Eventually, I had to lower my sights to something that I could turn into reality," said Mr. Hudson.

Over the summer, he took an entry-level job at U-Haul Co., earning
$9.50 an hour, the same wage he had at age 18 driving a truck
delivering industrial supplies. Health insurance will kick in if he
stays six months.

Since getting the new job, he has continued to cut back on spending
to adapt to his new reality. He shut off his home phone, using a
less-costly cellphone, and sold his second car. "I'm spending money
only on essential bills," he said.

Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com