With the disaster on Wall Street, we’ve all been waiting for the other shoe to drop. What is going to be the impact on regular people, on jobs, on community life? It’s hard to say, but here’s the gossip that I’ve picked up from phone calls with friends and from chats with parents at bus stops.
On academia. I’m sort of on the job market this winter. My
geographic restrictions and time limitations mean that I’m not really
in the same place as the other recent PhD grads out there. I’m not
applying for any and all positions. But I have been in deep
conversations with my old advisers and other job seekers. I’m hearing
stories of academic lines being withdrawn, because the funding has
dried up. I’m hearing about 70 year professors who suddenly can’t
retire, because their retirement accounts have taken serious hits. Some
universities are imposing new rules that schools have to wait a year or
two before advertising for openings after someone retires.
On Wall Street. Bonus time is arriving. Most people on Wall
Street receive only about a third of their yearly income from weekly
salaries. The rest comes from end of the year bonuses. The usual rule
about bonuses is that it can never be lower than the previous year.
That rule is out the window this year. Wall Street has been bracing
themselves for a 30% cut in bonuses. But the angry mobs outside their
offices might not allow that. They might get 70% of last year’s bonus.
While some on Wall Street make obscene amounts of money and could
certainly live with a major pay cut without checking into a homeless
shelter, there’s a lot of just regular people in these firms who take
care of documentation, work the computer systems, and answer phones.
Those people are going to be feeling serious pain in a month. One way
that firms may reduce the bonuses is just by firing a bunch of people
this month, right before bonus period. Actually, one firm is going to
fire 10% of its workers today.
On schools. A good friend is finishing off her masters in
education this semester. She’s was hoping to find a teaching job for
the spring. That probably won’t happen. The Governor of New York has
announced major cuts to education and other services, because New York State has lost so much much with the Wall Street meltdown.
On media and new media. Old
media has been hemorrhaging for ages now, but a growing loss of
advertisers might this death. If things don’t pick up, we may be
looking at government sponsored newspapers and journals.
New media isn’t fairing much better. Nick Denton
has been talking about the problems at Gawker Media. Again, the problem
is the dry up of advertisers. Apparently, political blogs and websites
are even worse off, because advertisers are too frightened to place ads
on those sites. Expect a lot more gadget-based blogs and website and a
whole lot less of political ones.
Family life. The
impact on family life is definitely a mixed bag. Some workers are
coming home earlier, because there’s just less business happening then
before. Some working parents are now home for good. For families that
can afford to get by one income, this has some real benefits for the
kids. There’s going to be a lot more cocooning at home and this is
always a net gain for the kids. However, many families cannot sustain a
one-income lifestyle for long. Poverty is always a bad thing for kids.
So, short term gains, perhaps long term disaster.
Have the woes on Wall Street hit you or your community yet?
Apt. 11d 
Pittsburgh made some list of the best places to ride out the recession, so I guess I’m a little bit hopeful. I’m also hoping that the recession will prevent the forthcoming bus strike/lock-out. Striking for free healthcare for retirees (regardless of age after 25 years) might be less tenable now.
But, Pittsburgh is big time in debt and higher rates on that debt might mean higher taxes or more service cuts. On the other hand, if it gets bad enough, the state may let us go bankrupt and that could help.
Lastly, there are a few biggish developments planned for my end of town. I’d really like to see these go forward, but who knows now. Somebody wants to put a hotel/condo thing about 10 blocks from my house and I’d really like that.
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So far, riding out the recession ok. Housing prices aren’t going down much around here, which is a bit of a bummer as I’d love to snatch up a bargain (we’re about at full capacity right now, with growing kids).
The schools and the town are having a horrible conflict right now. The teachers got a raise, but to do that the school committee wants some of the money from the town budget, much to the town’s dismay. But at Town Meeting last week, voters agreed to give the schools the money. Anyway, long story short, too little money, and too much stuff we want to spend money on. The town/school conflict will only grow especially since we have an asshole as Superintendent.
Work: I’m in English, and we have a zillion adjuncts. The adjuncts will go before we full-timers will.
Family life: No change. We have good bosses/work situations.
I worry about my students, though. We have programs in a lot of sectors of the economy where a slowdown is predicted. The only programs I see riding out the downturn are our technology programs and our criminal justice program.
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Wow, low pay and first out the door when trouble hits. I hope your adjuncts at least get first crack at open positions.
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I visited a suburban housing development a year ago, and I got a phone call a couple days ago from a saleswoman. She was offering zero down on some of their houses (in a suburb with so-so schools, located on the side of town near a depressed area with boarded up houses). She said that for $150k, I could get the sort of house that they sell for $170k in their other suburban developments (i.e. the ones with good schools). The saleswoman also mentioned that there’s a $7500 tax credit available.
I also recently spoke to one of my entrepeneurial relatives. He said they’re cutting off several of their t-shirt suppliers. “Life is Good” expects their t-shirts to retail for around $30, while the off-brand t-shirt makers ask $5 wholesale. Likewise, Columbia wants hiking pants to retail for around $75, while similar off-brand pants retail for $25. My relative is battening down the hatches, but he is also investing in a new project (printing thousands of copies of an updated version of an old book). It’s a risky venture, but in the current climate, he will probably be able to keep costs down.
Another entrepeneurial relative now runs two vehicles on restaurant grease. He bought a special tank for his truck for $350, has made arrangements with restaurants over a large area, and now fuels his vehicles for $1 a gallon. With $2 gas, that’s not as amazing as it used to be, but I’m sure it gives him peace of mind.
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I’m on the academic market. One job is gone due to budget cuts. Haven’t heard anything about the other. Adjunct work doesn’t seem to have dried up, but I have something for spring, just need fall. I’m also hoping to do some consulting, but I’m thinking that’s not going to take off any time soon.
Philadelphia is making huge cuts to its budget. Food banks are desperate and homeless shelters are full. On the other hand, the number of mortgage defaults in the state is down.
I haven’t seen anything locally yet about school cuts, etc., but I wouldn’t be surprised. I have noticed more advertising for private schools, which says to me they’re worried about enrollments.
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“I hope your adjuncts at least get first crack at open positions.”
Actually, I was the last external hire, and I was hired 5+ years ago. Since then, all of our full-time hires have been part-timers here.
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Arnold Kling has put up a very interesting piece on the question of why firms/individuals tend to go for job/no job rather than adjusting work hours down for the people who are in place: http://econlog.econlib.org/archives/2008/11/lectures_on_mac_1.html#more
“…In addition, economists have considered a number of sociological reasons for maintaining wages. For example, wage cuts may demoralize workers and therefore harm productivity.
In any case, I find it plausible that under most circumstances wage cuts are not a good way for a firm to cope with adversity. Still, from a macroeconomic perspective, there are rare circumstances in which wage cuts are called for.
For example, if there is general deflation, then cuts in nominal wages are needed in order to keep wages from rising relative to prices and productivity. This may have been an issue during the Great Depression. One would expect that if real wages were too high, employment would fall and productivity would rise as firms attempt to economize on expensive labor. This seems to be what happened.
In addition, if there is a major sectoral decline that is too big for the rest of the economy to absorb, it might be better for wages to fall for a while in that sector in order to help maintain employment. In the long run, a decline in demand for cars relative to physical therapists should lead to fewer auto assemblers and more physical therapists. In the short run, an unusually large decline in auto demand (due, say, to permanently higher oil prices) might best be met with lower wages in the auto industry, which could bring down prices and enable firms to sell more cars than they would otherwise.
Even if the macroeconomic rationales for wage cuts may on occasion be legitimate, such cuts may be very difficult to implement. How is a worker to tell the difference between an appropriate, macro-determined wage cut and a raw deal? ..”
It seems odd to me that the law firms seem to be adjusting mostly by canning people and paying the remaining people pretty much as well as they were being paid before – if you think the work will come back in two years, say, aren’t you better off keeping your existing teams in place and being ready to jump on work when things pick up? It sounds like the bonus system on Wall Street allows firms to adjust compensation up and down pretty severely, more like what Kling is talking about, and if there’s nothing else out there, folks who have expected a big bonus before will suck it up and stay in place. Good? Bad? Who knows?
In the Depression, wages did go down.
My own private economic indicator is the number of day laborers waiting for work at 930 on a weekday morning at Pershing & Glebe, in Arlington VA. In good times, the guys who were there at 630 looking for work are mostly gone to the jobsites. Lately, there are still 30 guys hoping. Doesn’t look good.
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It seems odd to me that the law firms seem to be adjusting mostly by canning people and paying the remaining people pretty much as well as they were being paid before – if you think the work will come back in two years, say, aren’t you better off keeping your existing teams in place and being ready to jump on work when things pick up?
Above the Law was just talking about this — firms are essentially doing both, canning people and not paying survivors what they were before, because no one can bill enough hours to meet the bonus quotas. So it’s more like Wall Street than you might think, except that bonuses are more 10-15% of a BigLawyer’s salary than the 60%+ of Wall Street. But there is unofficial wage cutting due to the lack of work within firms.
Anyway, I admittedly see everything through the lens of someone following Pittsburgh’s current municipal flash points, but I suspect that a big part of the reason companies might prefer canning to wage deflation is the cost of benefits. If benefits and overhead on an employee cost you even just 60% of salary — which I think is a really low estimate — and you intend to still provide benefits, you’d need to cut their wages by 80% (!) to have them cost you 50% of what they were before. Can you imagine anyone accepting an offer to work half their old hours for a fifth of their old pay? I guess it depends on how much they make and how generous unemployment is in their state…
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There’s actually been a pretty big jump in “part-time for economic reasons” (e.g. people who want to work full time but either can’t find a full-time job or have had their hours cut). But that’s much more common in retail jobs than in professional services.
So far, the recession is mostly showing up personally in work being crazy busy, but the director being unwilling to let us hire someone new, for fear that our grants will dry up because the foundations are taking hits in the market.
Class sizes will probably be bigger next year at school, but as someone who grew up in NYC during the 1970s, it’s hard for me to get too worked up that there might be 23 kids in a class.
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“If benefits and overhead on an employee cost you even just 60% of salary — which I think is a really low estimate — and you intend to still provide benefits, you’d need to cut their wages by 80%”
I think this is the secret hidden cost of why the American model of benefits can’t work in the future economy. The benefits model only makes sense when employment fits a single model (full-time, life-long). Saying that, I guess there are still two ways to go — devolving benefits payments to the individual or devolving them to the government. I just don’t see how they can continue to be part of the employment package in the long run.
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I remember overtly doing this math at halfchangedworld a while back. The fully loaded cost of a part-time employee is very very close to a full-time employee. Currently employers have every incentive to hire a few people and work them to absolute death. No one really talks about this, but it’s a big issue.
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I worked for a VC-funded software company. We had a bad third quarter, and I was laid off in late October.
For the time being, I’m being very selective about the prospective employers I talk to, but I am prepared to relax my standards if I’m out of work for a few months.
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Not in the same vein as other comments, but I went to the mall earlier today – more people working there than shopping there. And this is a readily accessible mall in largely recession-proof Arlington VA that is usually teeming with people on weekends and holidays. It was the first very real sign to me that the current crisis is different and the current crisis is B*A*D.
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