business
Minnesota feels pinch of pay cuts
- Article by: DEE DEPASS , Star Tribune
- Updated: December 13, 2009 - 9:57 AM
As more workers have their pay or hours trimmed, the state sees its revenue shrink.
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Carrie Price has her job back, but at half the pay.
A line worker at the Ford plant in St. Paul, she took a buyout two years ago. Then she couldn't find another job. The one she eventually got, back at the plant for $14.60 an hour, hardly pays what she needs as a single mom of four children.
"There are about 100 to 150 others here just like me," Price said during a break from installing door panels.
Her story has broad implications for the state and for the nation.
Even as thousands of Minnesotans hit the unemployment line this year, thousands more who kept their jobs took deep wage cuts or saw their hours cut, resulting in an overall drop in earnings that's the steepest since the state began reporting wage data in 1970, officials say. That helps explain why Minnesota tax revenue has plummeted and the state faces another big budget deficit.
According to a report by the Minnesota Management and Budget office, state individual income tax receipts for fiscal 2009 were $220 million less than projected in February. Those taxes for 2010 are projected to be nearly $1 billion lower than what was forecast at the end of the legislative session.
The change is largely because of two years of aggressive layoffs, wage cuts and work-hour reductions at recession-weary companies such as Ford, 3M, Target, Polaris, Pentair and hundreds of others.
It's happening all around the country, Minnesota State Economist Tom Stinson said. "We have the total wages in the country in 2009 declining by 4.5 percent. That is pretty impressive."
Lower pay, lower taxes
In Minnesota, total wages are down 5.5 percent. Stinson and other state officials expect a $1.16 billion revenue shortfall for fiscal 2010, with the biggest chunk coming from a drop in personal incomes. That hit to paychecks outpaced Minnesota's revenue declines from corporate taxes, sales taxes, motor vehicle fees, statewide levies and other revenue sourcescombined.
An estimated 224,000 Minnesotans have lost their jobs since the start of the recession. The Management and Budget office estimates that 90,000 more were forced to take part-time work because of hourly cutbacks at their plants or the inability to find full-time jobs after layoffs.
As a result, "Minnesota's job losses have been accompanied by record declines in total wages paid to state residents," Stinson said.
Through November, total dollar wages are on pace to fall by 5.5 percent, which is far worse than the 1.4 percent drop economists predicted in February.
"Approximately 70 percent of this decline in wages is due to a reduction in employment, meaning job losses and layoffs," Stinson said.
"That leaves the other 30 percent to a reduction in work hours or a reduction in hourly pay."
Steve Hine, director of the state's Labor Market Information Office, noted that the hourly work week jumped by about 12 minutes nationally last month, while seasonally adjusted average hourly earnings increased by just a penny.
Neither is likely to change economists' revenue forecasts anytime soon. Still, it's a hopeful sign, he said.
Sue Heinemann certainly hopes so. She lost her $70,000 graphic design job when Supra Color Labs shut her office four years ago. After being advised that health care was "the" recession-proof industry with lots of job openings, Heinemann went to school to become a radiologist.
But after graduating, she can't find a job in her old field or in her new one. Since January, she's been working 32 to 40 hours a week as a Target pharmacy technician. She's made less than $20,000 this year. "So now, it's pretty much ramen noodles," she said.
Stinson sympathized. "Here we saw the loss of a job where $70,000 is being replaced with a job paying $20,000. These are really sad cases," he said. "Unfortunately, that is what is happening as we come out of this very deep and very long recession."
Learning to adjust
When income drops as low as $20,000 a year, the taxpayer often ends up with a significantly downsized tax bill, Stinson said. The state and the citizens are learning to adjust.
Cathy Nordin knows all about adjusting. "My husband is an architect. He recently had his hours cut back to 36 hours a week. We're not complaining. Some people at his firm have gone down to 24 hours and others got laid off," said Nordin, also an architect, who lost her job last year. Now, the St. Paul family is still learning to live on roughly $70,000 a year less than they used to.
Nordin recently took a holiday retail job at Herberger's that pays roughly $8.50 an hour. "You cut back where you can,'' she said. "I shop very prudently. I use coupons and I will go to two or three grocery stores during the week to get the bargains. I take advantage of double-coupon day at Rainbow. You just buy what you need, not what you want."
Making the same case
Gov. Tim Pawlenty has been using that same argument with legislators, insisting that the state needs to cut spending and postpone expenses but not raise taxes to balance the budget.
Still, Pawlenty can't control corporate decisions that drain the flow of employee income taxes to the state.
Economists predict that the jobless recovery could last well into next year, and that doesn't spell good news for future state budgets. According to the most recent forecast by the Minnesota Management and Budget office, total wages paid in the state are expected to resume growing in 2010 and continue to grow in 2011, but "total Minnesota wages and salaries do not reach their previous highs until after the close of the current biennium."
In St. Paul, where the Ford Ranger plant is enjoying a rare spell of overtime this month, the pain of the recession has been deep. The plant, once slated for closing, is now scheduled to be kept open until 2011.
"We have had 12 weeks of furloughs this year. We have been hurting," said Ronda Danielson, president of United Auto Workers Local 879.
Hundreds of Ford workers who took buyout packages over the past three years, when the plant appeared to be shutting down, couldn't find well-paying replacement jobs. So when the plant got a reprieve from Ford, they ended up coming back at about half their former salaries.
That's Price's predicament. Her new salary didn't cover the $1,000 monthly rent on her Coon Rapids house. She has lost the home, and custody of her children, and now bunks with family and friends while she looks for a new place.
That wage cut "is huge," Danielson said.
Dee DePass • 612-673-7725
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