Broadcast July 5, 2001
In previous slowdowns, unemployment has reached 7, 8, 9 percent. But we're nowhere near those levels, and we're not likely to be even if this slowdown slides into a full-fledged recession. So what's going on? Here's a hint. In the old days--that is, before 1990--most Americans held steady jobs with steady pay. As long as you had a job, you could be reasonably certain about how much you'd earn next month or even next year. Unless, of course, a recession came along and you got laid off. So it was all or nothing--a steady job or unemployment.
That's no longer the case. These days even if you're classified as a full-time employee, your take-home pay is more likely to vary from month to month and year to year. A growing percent of the paychecks of America rise or fall depending on demand for what's being sold. More employees than ever are paid by commission, a direct percentage of what they sell. Or their pay is based on billable hours. One guy was bragging to me recently about his billability. Or what are called performance bonuses or profit sharing or stock options. Or, if you're an hourly worker, more of your paycheck is based on the number of overtime hours you put in.
Today's companies need to be nimble in order to survive, and they can adjust far quicker to changes in demand if they don't have to bear the high fixed costs of steady payrolls. Yet they'd rather not fire employees when things slow down, because the cost of rehiring and retraining them when times get better is too high. So the answer is to give employees wages that rise or fall depending on demand. This means that even though unemployment is still relatively low, the squeeze is occurring on take-home pay. As the economy slows, all those commissions, bonuses, billable hours, stock options and the rest are dropping, which means customers won't have the income they need to go on buying.
If this continues, we could find ourselves in something altogether new, a low-unemployment recession.
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