ECONOMY Recession takes toll on pay and benefits

Inflation will rise faster than paychecks in the recession.
CHRISTIAN SCIENCE MONITOR
America's recession has not only meant rising job losses. It also has been hard on pay and benefits.
Companies have reduced or eliminated bonus checks. Severance pay has shrunk. About 2 percent of employers are freezing wages, and others are postponing raises.
On the benefits side, many firms have stopped making matching contributions to 401K plans. And some are turning to so-called "permatemps," contract workers who get lower benefits, to fill vacancies.
The corporate belt-tightening comes as the recession may be nearing an end, but compensation experts say the leaner paychecks are likely to persist well into an economic recovery. That's because it generally takes some time for profits to rebound and for companies to feel that they must once again compete for good workers.
"There are a whole series of measures that companies are taking, short of layoffs, to cut costs," said John Challenger, who heads the Chicago-based outplacement firm Challenger, Gray & amp; Christmas. With more than 700,000 people laid off in the past two months, "it isn't the go-go days anymore."
Sees the shift: Steven Gross, a compensation expert at William M. Mercer in New York, has seen the shift in his consulting practice: Today he's advising more firms on severance packages than on signing bonuses.
And with the jobless rate at 5.7 percent, up from 3.9 percent late last year, many workers are more concerned with keeping their jobs than with negotiating better benefits. That's one reason some economists say pay raises in 2002 will fail to keep pace with inflation.
The change seems particularly stark because the nation has just emerged from an era of high prosperity.
Jan Hatzius, an economist at Goldman, Sachs & amp; Co., has estimated that bonus income nationwide this winter could be down by $40 billion -- a fall-off of almost 30 percent from the prior year. That reduction amounts to a sizable blow to the economy. It exceeds the tax rebates Uncle Sam handed out last summer.
How much decline? Overall, Hatzius predicts that real wages and salaries will decline 1 percent over the next year. That's on par with the average postwar recession. But it's a sharp drop from the 3.6 percent gain in after-inflation labor income in the past 12 months.
Although most workers do not face actual pay cuts, raises are diminishing or being pushed six months or more into the future. An October survey of 340 firms by Mercer found that, on average, they expect to grant wage increases of 2.9 to 3.1 percent next year. In a similar survey last April, firms were planning on 4.4 to 4.6 percent. Almost one-third of the firms had adjusted their wage increases downward.
Wage freezes: More companies may also institute wage freezes. By 1992, just after the last recession, 9 percent of companies had stopped all wage increases. Gross expects a similar pattern this recession.