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America’s Hidden Economic Crisis: Widespread Wage Reductions

Other estimates put it higher: About 7 million employees are likely to have received wage increases, said Mark Zandi, the lead economist at Moody’s Analytics. Combined with those forced to log fewer hours, the number is rising to 20 million people – or 1 in 8 workers – who have seen their salaries shrink in recent months, even as they have continued to work, underscoring how much damage shutdowns alone have caused by layoffs.

“We have an income crisis even bigger than an unemployed one,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth, wrote on Twitter recently.

“That includes so much,” Sahm, who previously worked with the Federal Reserve, said in an interview, referring to the label “income crisis.” “There are huge job losses. Hours are cut, overtime is lost. And then – and this is something we really haven’t seen at all – a large proportion of the workers are cutting their wages. ”

Cutbacks in particular mainly affect workers with higher wages, who are generally more protected against the consequences of a downturn. And smaller paychecks, even in the short term, lead to less expenditure and prolong the recession.

“The rate of recovery is in fact directly aligned with how consumers behave,” said Jane Oates, a former labor department official who now chairs the nonprofit WorkingNation. “And if people don’t have money, they don’t spend it.”

The trend also suggests that employees feel they have no better options than accepting less money for the same job. Americans think they have less than a 50 percent chance of finding a new job within three months if they were to become unemployed today, according to a Federal Reserve investigation in New York – a decrease of more than 16 percentage points compared to a year ago.

It also poses problems for employers, who have historically avoided wage cuts because of the damage they cause to employee morale and company productivity. But a cut in wages is now twice as likely as during the Great Recession, according to the study of ADP data, which likely indicates that employers felt they had no choice if they wanted to keep their doors open.