Recession, it starts with your paycheck and snowballs to others'
4:01 p.m. Thursday, October 16, 2008
Economists say in a recession often the first shoe to drop involves your pay.
"There are two main reasons your pay falls during a recession. The first is businesses cut back on workers hours and the second is that they don't give bonuses and raises that equal the rate of inflation," New York Times Business Columnist David Leonhardt said.
In fact, numbers from Census Bureau reveal in the last three recessions, the typical family saw the equivalent of a pay cut between 3 and 7 percent. "In 2010 the odds are good right now that the typical family will be making less than they were ten years earlier back in 2000. Remarkable, because we haven't seen anything like that since the 1930s," Leonhardt said.
It's a tough prospect for many Americans already dealing with meager pay increases falling well behind inflation, like the Goodmans who e-mailed ABC from Virginia.
"My husband's salary has only seen a 1 percent yearly increase for the past five years. We feel like we're being strangled financially," Mrs. Goodmans said.
And if the Goodmans have less family income, they spend less on homes, cars, retails and restaurants.
All of that extra spending will dry up. And the ripple widens because millions more Americans make their living from that extra spending, like Luis and Laura Trujillo from Boise, Idaho.
"This past week he did not work at all. Next week he is scheduled to do one job," they wrote in an e-mail to ABC. "We live paycheck to paycheck."
This is forcing couples to find more work, and in some cases, part-time moms are forced to look for more hours.
"You get into a vicious circle when consumption is falling, incomes are falling, production is falling, jobs are falling and the recession becomes more and more severe," New York University Economic Analyst Nouriel Roubini said.
Few economists argue whether we're in that cycle. The question now is for how long.
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